The conservative Supreme Court could soon eviscerate a key part of Congress’ response to the 2008 global financial crisis, with payday lenders challenging the constitutionality of the Consumer Financial Protection Bureau in one of the first hearings of the court’s new term.

In its challenge to the CFPB, the Community Financial Services Association of America, a trade association for the payday lending industry, argues that the agency’s funding through the Federal Reserve is unconstitutional under the Constitution’s appropriations clause. It is the latest attack on the CFPB by the financial industry following a 5-4 decision in the 2020 case of Seila Law v. CFPB, which allowed the president to fire the CFPB director at will instead of giving them a defined six-year term.

Originally conceived of by now-Sen. Elizabeth Warren (D-Mass.) before she entered politics, Congress created the CFPB as part of the Dodd-Frank financial reform law in 2010. That law housed the CFPB inside the Federal Reserve and provided for it to be funded by up to 12% of the Fed’s 2009 operating costs — expenses that top out at $597.6 million per year. The CFPB director must also appear before Congress biannually to justify the agency’s programs and budget.

But the payday lenders claim that the appropriations clause requires the CFPB to be funded through annual appropriations alone and not through continuous funding mechanisms. In addition, the payday lenders, which have vociferously opposed a CFPB rule prohibiting illegal debits from bank accounts, want all enforcement and regulatory actions taken by the agency since its inception to be voided. The payday lenders, whose Supreme Court case is set to begin Tuesday, are supported in their push to gut the CFPB by 33 Republicans in the Senate, 99 Republicans in the House, 27 Republican state attorneys general, and big business lobbying groups like the Chamber of Commerce.

The problem with their argument is that it flies in the face of the text and history of the appropriations clause. The clause states, “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Nowhere, however, does the clause state that appropriations must be made through the annual appropriations process.

Federal agencies and programs receive funding through annual appropriation acts. If appropriations are not enacted by the start of the fiscal year, Congress and the President can enact continuing resolutions (CRs) to fund the government. The federal government has operated under CRs in all but 3 of the last 46 years.

We looked at the impact of CRs on programs at 3 federal agencies: USDA, Education, and Health and Human Services. These agencies reported that CRs can slow hiring, create funding uncertainty, and cause administrative burdens. However, they all continued to operate and provide services without major disruptions.
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The three selected agencies and programs reported that they have experienced administrative inefficiencies and limited management options in areas like hiring during CRs. For example, Department of Agriculture (USDA) officials reported that CRs can cause hiring activities to slow down or pause. This can affect strategic hiring plans and program services. Recipients of the three selected agencies and programs also reported that CRs can create funding uncertainty and administrative burdens. For example, delays in learning about final funding amounts can affect the planning of the Department of Education's Predominantly Black Institutions (PBI) grant initiatives at recipient schools.

However, the three selected agencies and programs and their recipients have strategies to mitigate possible disruptions, allowing operations and services to continue during CRs. According to Department of Health and Human Services (HHS) Low Income Home Energy Assistance Program (LIHEAP) officials, the agency can request and receive an exception apportionment that allows grantees to receive 90 percent of the previous year's funding at the beginning of the next fiscal year, rather than the standard apportionment that is provided during the CR. Additionally, some LIHEAP grantees have access to additional funding, like state utility funds or funding from the state budget. This can help if disruptions occurred at the beginning of the fiscal year.

Right-Dominated Supreme Court Is Poised to Do Grave Harm in Upcoming Term

The 2023-2024 Supreme Court term will begin on Monday, October 2. Dominated by six right-wingers, the court has agreed to review cases in which voting rights, consumer protection, and the regulation of health and safety, workers’ rights and the environment are in jeopardy. The cases present the issues of gerrymandering and the power of administrative agencies. In light of its recent conservative rulings, we should be wary about how the court will rule on these critical matters.

Besides the cases already on the Supreme Court’s docket, the court will add more cases by mid-January. Their decisions will be issued by the end of June or beginning of July 2024.

Here are three impactful cases that are already on the court’s docket for its forthcoming term:

Survival of Consumer Financial Protection Bureau

On October 3, the Supreme Court will hear oral arguments in Consumer Financial Protection Bureau v. Community Financial Services Association, in which the Fifth Circuit Court of Appeals declared the Consumer Financial Protection Bureau (CFPB) unconstitutional.

Racial Gerrymandering vs. Partisan Gerrymandering

In 2019, a 5-4 conservative majority of the Supreme Court decided in Rucho v. Common Cause that although excessive partisan gerrymandering is “incompatible with democratic principles,” the federal courts were powerless to strike it down. Partisan gerrymandering occurs when one political party intentionally manipulates district boundaries to bolster its voting power. Most partisan gerrymandering is done by Republicans.

The high court has, however, struck down racial gerrymanders because they violate the Equal Protection Clause of the Constitution. Racial gerrymandering transpires when race constitutes a predominant factor in drawing congressional districts.

Executive vs. Judicial Power to Regulate Health, Safety, Labor, Environment

The Supreme Court created “Chevron deference” in the 1984 case of Chevron v. Natural Resources Defense Council. The doctrine requires that courts defer to a federal regulatory agency’s reasonable construction of a statute when a law is silent or ambiguous on a certain matter. For example, courts have used Chevron deference to uphold the National Labor Relations Board’s decision that certain workers are employees entitled to protections of the National Labor Relations Act; affirm the Environmental Protection Agency’s (EPA) rule requiring states to reduce emissions from power plants; sustain the Department of Labor’s interpretation of the Black Lung Benefits Act to allow coal miners with black lung disease to receive compensation; and accept the EPA’s revised regulations under the Toxic Substances Control Act to provide additional protection from lead paint exposure.

In its challenge to the CFPB, the Community Financial Services Association of America, a trade association for the payday lending industry, argues that the agency’s funding through the Federal Reserve is unconstitutional under the Constitution’s appropriations clause.

Article I, Section 9, Clause 7:

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

Payday Lenders Get Their Asses Handed To Them During Anti-CFPB Supreme Court Arguments

The case seeking to eviscerate the Consumer Financial Protection Bureau and void all of its regulatory decisions finally arrived on Tuesday for arguments at the Supreme Court. And it did not go well for the payday lenders who brought the case.

Since its inception in 2010, the financial industry broadly, and payday lenders specifically, have sought to destroy the agency, which is charged with protecting consumers from predatory financial practices. In Community Financial Services Association of America v. CFPB, payday lenders zeroed in on the agency’s funding mechanism as their means to invalidate agency rulings negatively impacting the payday lending industry.

The payday lenders brought this case in response to a CFPB regulation prohibiting illegal debits from bank accounts. The ultimate goal, however, is to defang the agency and invalidate its regulatory actions, including billions of dollars in fines levied against payday lenders and other financial companies since its inception.

When Congress created the CFPB, it placed it within the Federal Reserve and stated that it could draw funds of up to $600 million (subject to adjustments for inflation) from the Federal Reserve treasury, which is raised from payments made by regional reserve banks. In this week’s case, the payday lenders argue that Congress’ decision to fund the agency with non-annual appropriations raised by the Federal Reserve was unconstitutional under the Constitution’s Appropriations Clause and violated the separation of powers. The case came before the court following the Fifth Circuit Court of Appeals’ ruling that the agency’s funding is unconstitutional and all of its regulatory actions void.

The problem, as the government and numerous justices argued, is that this argument flies in the face of Congress’ history of funding agencies in a similar fashion, the text of the Constitution’s Appropriations Clause, and past court precedent.

At the nation’s founding, Congress created agencies like the Customs Service, the Post Office and revenue officers that were funded through non-annual, standing appropriations in much the same manner as the CFPB, Solicitor General Elizabeth Prelogar, representing the agency, argued in its defense. Since then, she added, Congress has authorized such funding arrangements hundreds of times, including for the entirety of the federal financial regulatory system.

“The CFPB appropriations fits squarely within this unbroken line of congressional practice,” Prelogar said.

This history of congressional practice is because the Appropriations Clause does not state that Congress must only fund agencies through annual appropriations or with funding capped at specific levels. On the other hand, the Constitution does provide such an instruction for funding the Army, indicating the lack of a specific limit in the Appropriations Clause is meant to allow Congress to exercise its own judgment on how to make appropriations.

YankeeTarheel wrote: Tue Oct 03, 2023 8:14 pm Apparently, the SCOTUS didn't seem too enthusiastic about gutting it.

Prelogar [current Solicitor General of the US] faced tough questioning from some of the conservative justices, who wondered what the limits should be on Congress giving up its power of the purse to the executive branch. “If the president determined it was reasonably necessary to take a trillion dollars, that would satisfy your concern and, on the Appropriations Clause itself, [it] has no upper-limit constraint?” asked Justice Neil M. Gorsuch. Chief Justice John G. Roberts Jr. noted that Prelogar was being very “aggressive” in defending Congress’s ability to give up its appropriations powers to the executive branch.

But conservative justices Brett M. Kavanaugh and Amy Coney Barrett seemed more skeptical of the breadth of Francisco’s arguments and the lower court’s decision. Kavanaugh objected to Francisco [former Solicitor General of the US] saying Congress had set up a perpetual funding source for the CFPB. That “implies that it’s entrenched and that a future Congress couldn’t change it,” Kavanaugh said. “But Congress could change it tomorrow, and there’s nothing perpetual or permanent about this.” Kavanaugh said he thought the CFPB had a “massive constitutional flaw” when it was created, because it placed the agency under the control of a single director who could only be removed by the president for a good reason. But three years ago, he said, the court agreed with challengers about that in a separate case and “fixed” it by enhancing the president’s power.

At the end, Thomas offered Francisco a chance to focus his argument more sharply. He asked Francisco to “complete this sentence: Funding of the CFPB violates the Appropriations Clause because …?” “Because Congress has not determined the amount that this agency should be spending,” Francisco said. “Instead, it has delegated to the director the authority to pick his own appropriation, subject only to an upper limit that’s so — so high it’s rarely meaningful.”