Supreme Court hears heated debate over Consumer Financial Protection Bureau

Biden administration Solicitor General Elizabeth Prelogar delivered a forceful defense of the Consumer Financial Protection Bureau on Tuesday during a heated Supreme Court argument over the constitutionality of the agency's funding and its future as a bulwark against predatory financial services.

She faced off against former Trump administration Solicitor General Noel Francisco, representing a group of payday loan companies subjected to CFPB regulation and challenging its existence, who argued the agency's structure is illegal and must be struck down.

Hanging in the balance is the consumer watchdog and banking regulator created by Congress after the 2008 financial crisis to protect Americans from predatory lending practices and deceptive financial products. Its regulations govern everything from credit cards to personal loans and home mortgages.

Prelogar told the justices that sidelining the CFPB and invalidating its regulations would create "profound disruption in various economic markets that would hurt the regulated entities themselves."

The agency says it has won $17.5 billion in restitution from corporate wrongdoing and helped cancel debts for 200 million Americans.

But the CFPB, championed by progressives, has long faced the ire of Wall Street firms who see it as government regulation gone too far.

"This case is about checks and balances," said Francisco. "One of Congress's most important checks on executive power is its power of the purse."

At the heart of the case, CFPB v. Community Financial Services, is how Congress decided to fund the new agency in 2010. It did so indirectly through the Federal Reserve, allowing it to draw whatever money it needs from the central bank's funds -- subject to a $600 million annual cap -- rather than directly awarding a fixed amount on an annual basis.

A lower court found that the arrangement violated the Constitution's Appropriations Clause because Congress did not pass a law specifying the amount of funds for CFPB, and that therefore all of the agency's regulations should be invalidated.

Congress erred when it "authorized the CFPB to spend whatever it deems reasonably necessary in perpetuity, subject only to a cap so high it's almost never relevant, all for the very purpose of making this the most independent agency in American history," Francisco said.

But Prelogar insisted that historical precedent and the text of the Constitution clearly give Congress power to design and fund federal agencies as it pleases.

"Since the founding, Congress has consistently funded agencies through standing appropriations that are not time-limited and that provide significant discretion over how much to spend," she said.

The court's three liberal justices -- at times joined by Justices Amy Coney Barrett and Brett Kavanaugh -- appeared to find Prelogar's argument highly convincing.

"There's nothing in the Appropriations Clause itself or in the word 'appropriations' that imposes the limits [on Congress] that you're talking about," Justice Barrett said to Francisco, the challengers' attorney.

Justice Kavanaugh noted that if the arrangement was seen as problematic by poilcymakers, "Congress could change it tomorrow," he said. "There's nothing perpetual or permanent about this."

Justice Ketanji Brown Jackson, in a prolonged and heated exchange with Francisco, became exasperated with his argument.

"Why isn't this just up to Congress, and if they decide they want to set it up in this way, without limit, so be it?" she asked.

"Because, Your Honor, I think that that would be completely inconsistent with the entire purpose of separating the sword and purse," Francisco shot back.

"So you're saying a provision of the Constitution is unconstitutional?" Jackson shot back. "No, Your Honor," he replied.

Several of the court's conservatives seemed sympathetic with the challengers' claims, openly grappling with the prospect of Congress effectively giving a blank check to the executive branch.

"You have a very aggressive view of Congress' authority under the Appropriations Clause," Chief Justice John Roberts said to Prelogar. "The more power you give Congress, I think, the more ... that it can give away and enhance the authority of the executive."

The case will be decided by the high court by the end of June 2024.

"If the Supreme Court sides with the Community Financial Services Agency, it could wreak havoc on the CFPB's ability to carry out its consumer protection activities, and it could potentially invalidate existing rulemaking and enforcement activities. A closely divided Congress would likely need to intervene to restructure the agency's funding mechanism to keep the CFPB alive," said Mallory SoRelle, an assistant professor at the Sanford School of Public Policy at Duke University.

In the meantime, the agency says it plans to continue operations.

"The CFPB protects American families from financial abuses and helps ensure honest businesses can compete on a level playing field," said CFPB spokeswoman Allison Preiss in a statement following Tuesday's oral arguments. "We are confident in the constitutionality of the statute that created the CFPB within the Federal Reserve System and provides its funding. We will continue to carry out the vital work Congress has charged us to perform."