Supreme Court rejects payday lenders’ challenge to Obama-era consumer protection bureau

The Supreme Court on Thursday upheld the U.S. consumer protection agency that was created under President Obama and congressional Democrats to protect Americans from financial scams.

By a 7-2 vote, the justices rejected a constitutional claim brought by a coalition of payday lenders who had won before a panel of three Trump appointees on the 5th Circuit Court of Appeals.

The lower court had questioned the legality of the Consumer Financial Protection Bureau, ruling it was not properly “accountable to Congress” because it did not receive its funding through an annual appropriation.

Writing for the majority, Justice Clarence Thomas said early American history shows that Congress could fund the government through different means, not just through an annual appropriation.

“Based on the Constitution’s text, the history against which that text was enacted, and congressional practice immediately following ratification, we conclude that appropriations need only identify a source of public funds and authorize the expenditure of those funds for designated purposes to satisfy the appropriations clause,” he wrote in CFPB vs. Consumer Financial Services Association.

Justices Samuel A. Alito Jr. and Neil M. Gorsuch dissented.

Alito faulted the court for upholding “a novel statutory scheme under which the powerful CFPB may bankroll its own agenda without any congressional control or oversight.”

Consumer advocates welcomed the decision.

“This ruling upholds the independent funding structure that has made the CFPB a successful advocate for protecting consumers and holding big banks, payday lenders, and other financial institutions accountable,” said Devon Ombres, a legal policy director for the Center for American Progress. A ruling upholding the 5th Circuit Court “could have placed the entire financial regulatory system at risk and roiled financial markets.”

“Predatory lenders and companies that rip consumers off with illegal junk fees have been trying to undermine the CFPB since it was created,” said Lauren Saunders, associate director of the National Consumer Law Center.

In creating the new bureau, Congress decided to fund it with lending fees from the Federal Reserve. If the Supreme Court had ruled such funding was unconstitutional, its decision would have cast doubt on the Federal Reserve as well.

In defense of the bureau, Biden administration attorneys argued that throughout American history, Congress has created agencies and bureaus such as the Post Office, the National Mint, the Customs Bureau and the Patent Office that were funded by fees, not an annual appropriation from Congress.

The CFPB called the decision “a resounding victory for American families and honest businesses alike, ensuring that consumers are protected from predatory corporations and that markets are fair, transparent, and competitive. ... For years, lawbreaking companies and Wall Street lobbyists have been scheming to defund essential consumer protection enforcement.”

Its statement said since the bureau opened its doors in 2011, “it has delivered more than $20 billion in consumer relief to hundreds of millions of consumers and has handled more than 4 million consumer complaints.”

Thursday’s decision is the latest sign that the Supreme Court’s conservatives are not ready to rubber stamp far-right rulings from Trump-appointed judges in Texas and Louisiana.

On Wednesday, the justices set aside a decision by two Trump appointees in Louisiana that would have blocked the use of a new state election map with two majority Black districts.

Still pending before the court is a conservative challenge to the availability of abortion medication. Since 2000, the Food and Drug Administration has said these pills are safe and effective for ending early pregnancies. But antiabortion doctors went to Texas and won rulings that could strictly limit dispensing the pills.

The consumer protection bureau that was upheld Thursday was conceived by Sen. Elizabeth Warren (D-Mass.) when she was a law professor.

The bureau became the centerpiece of the 2010 Dodd-Frank overhaul of financial regulations following the collapse of the mortgage market.

Its mission was to protect borrowers and consumers from deceptive and unfair practices by banks and mortgage lenders.

But it has been steadily opposed by much of the lending industry and by many Republicans who say the agency has too much unchecked power.

Congressional Democrats who created the bureau tried to shield it from the politics of Washington but that led to problems in the courts.

Under the 2010 legislation, the bureau’s director could not be removed by the president for political reasons, and the bureau’s budget was off-limits to Congress’ annual process of appropriations. Instead, its funding comes from the Federal Reserve, which earns fees from lending. The bureau used $641 million of that money last year.

The Supreme Court’s conservatives had cast a skeptical eye on the bureau. Four years ago, the justices in a 5-4 decision rejected the independent status of the director and ruled that person could be removed by the president for any reason.

The current dispute began as a challenge to a proposed regulation of payday lenders.

In ruling for the lenders, the three judges of the 5th Circuit, all appointees of then-President Trump, said it violated the Constitution to shield the bureau from an annual fight over its appropriation.

Judge Cory Wilson said the “bureau’s perpetual insulation from Congress’ appropriations power, including the express exemption from congressional review of its funding, renders it ... no longer accountable to Congress and, ultimately, to the people.”