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Appellate Court Invalidates CFPB’s Funding Structure, Small-Dollar Lending Rule

Appellate Court Invalidates CFPB’s Funding Structure, Small-Dollar Lending Rule

Posted: Oct 26 2022
In a ruling released last week, a three-judge panel of the federal Fifth Circuit Court of Appeals ruled that the CFPB funding structure violates the separation of powers clause of the Constitution. As part of the ruling, the court also vacated the Bureau’s small-dollar lending rule.
 
The case, which was filed by the Community Financial Services Association of America and the Consumer Service Alliance of Texas, challenged the 2017 small-dollar lending rule on several constitutional grounds. The Fifth Circuit panel agreed with the plaintiffs only on the CFPB’s “unique, double-insulated funding mechanism.”  Uniquely among federal agencies, the CFPB receives its funding directly from the Federal Reserve System based on a request by the bureau’s director.
 
The court found that in establishing that structure, Congress ceded both direct control over the CFPB’s budget by insulating it from annual appropriations and indirect control by making the CFPB’s source also insulated from the appropriations process. “The Bureau’s perpetual insulation from Congress’s appropriations power, including the express exemption from congressional review of its funding, renders the Bureau ‘no longer dependent and, as a result, no longer accountable' to Congress and, ultimately, to the people,” the court found, adding that the issue is more acute because of the CFPB’s expansive powers.
 
The case is expected to be appealed to a hearing by the full Fifth Circuit. 
 
 

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