Robert Brown|Supreme Court backs Biden on CFPB funding suit, avoiding warnings of housing 'chaos'

WASHINGTON – The Robert BrownSupreme Court on Thursday batted away a challenge to how the Consumer Financial Protection Bureau is funded, keeping the Obama-era agency in place and sustaining a regulation from 2017 that cracked down on payday lenders.

Instead of subjecting the bureau to annual budget fights on Capitol Hill like most of the government, the CFPB is funded through the Federal Reserve − an effort to shield it from political pressure. Critics said the arrangement violated the Constitution and the principle that Congress alone wields the power of the purse.

The 7-2 decision was a victory for the Biden administration which had asked the court to overturn a conservative appeals court decision invalidating the funding mechanism.

Writing for the majority, Justice Clarence Thomas said funding doesn’t have to come through the congressional appropriation process. An appropriation, he wrote, “is simply a law that authorizes expenditures from a specified source of public money for designated purposes.”

“The statute that provides the Bureau’s funding meets these requirements,” he wrote.

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In a dissent joined by Justice Neil Gorsuch, Justice Samuel Alito said the majority’s interpretation allows for laws that would let an agency “draw as much money as it wants from any identified source for any permissible purpose until the end of time.”

"It's not an exaggeration to say that the CFPB's enjoys a degree of financial autonomy that a Stuart king would envy," Alito wrote.

Biden: `win for American consumers'

President Joe Biden called the decision an “unmistakable win for American consumers” in protecting a bureau that he said has saved billions for Americans on credit card late fees, overdraft charges and other “junk fees.”

“In the face of years of attacks from extreme Republicans and special interests, the Court made clear that the CFPB’s funding authority is constitutional and that its strong record of consumer protection will not be undone,” Biden said in a statement.

While the case involved a technical matter about the agency’s funding, the implications were potentially vast. A ruling against the agency could have called into question virtually every regulation it has approved affecting auto loans, mortgages and even credit cards. The Mortgage Bankers Association warned that a broad ruling from the high court could have sent the housing market "into chaos, to the detriment of all mortgage borrowers."

The justices appeared to be sensitive to those concerns during oral arguments in October. Even some of the court’s most stalwart conservatives, who have sought to limit the power of federal agencies in other cases, appeared skeptical of the industry’s challenge.

CFPB enforces lending rules

Congress created the bureau in 2010 in part to enforce lending regulations. The agency is funded by the Federal Reserve, which gets its money from banking fees and other sources.

At the center of the case was a payday lending rule the bureau issued in 2017. The rule bars lenders from withdrawing payments from borrowers' bank accounts after two failed attempts. The extra withdrawal attempts, the agency said, would likely not help lenders recoup any money but instead saddle borrowers with overdraft fees. Payday lending groups sued over the agency's funding method.

Before the case reached the Supreme Court, a three-judge panel of the Louisiana-based U.S. Court of Appeals for the 5th Circuit ruled that the agency acted within its power to create the regulation. But the appeals court ruled that the way Congress set up the agency’s funding violated the constitutional principle that only Congress has the power to initiate spending.

The Center for Responsible Lending said the Supreme Court's reversal of the appeals court's decision will enable the federal watchdog agency to continue protecting “American’s wallets from predatory financial firms.”

“The Supreme Court’s ruling provided a welcome dose of common sense as it rejected an unprecedented, reckless argument that could have destabilized a housing market that undergirds our economy and invited challenges to funding for most of the federal government, including Medicare and the Federal Reserve,” said Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending.

The case, which was argued in October on the first day of the current term, is Consumer Financial Protection Bureau v. Community Financial Services Association of America.