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Supreme Court Arguments: Elizabeth Warren’s CFPB May Not Survive

Constitutional questions in the first big case of the season.

“The purse and the sword ought never to get into the same hands.” That was Founding Father George Mason’s admonition in 1787, and it was such thinking that heralded the Appropriations Clause of the US Constitution, which states that no money shall be taken from the Treasury other than that granted in law. Thus, the duty of meting out public funds is typically performed by Congress. However, as the Supreme Court decides its first politically charged case of the term, it will answer the question: Is the Consumer Financial Protection Board (CFPB) an unconstitutional Democrat Party workaround for the Appropriations Clause? Conservatives hope a majority of justices sweep the CFPB into the ashbin of history, along with future attempts to fund agencies outside of traditional appropriations bills.

Arguments were heard Oct. 3 in a case born when an industry group of payday lenders challenged a regulation issued by the CFPB. The lenders objected to rules issued by the federal agency preventing certain automatic withdrawals of payments and prohibiting lending without an investigation of a borrower’s ability to repay. They sued, arguing, among other challenges, that the CFPB was not constitutional because of how it is funded. When Congress set up the agency, it provided a funding range and let the director determine the specific budget. The lower court agreed, and the Supreme Court will decide its fate this term.

The appellate court (5th Circuit) ruled last year that the bureau’s funding mechanism ran afoul of the Appropriations Clause, which states:

“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.”

Near the end of the argument session from a relatively hot bench, Justice Clarence Thomas said to the lenders’ attorney, Noel Francisco: “I’d like you to complete this sentence: Funding of the CFPB is — violates the Appropriations Clause because?” Francisco replied, “Because Congress has not determined the amount that this agency should be spending. 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.”

According to Solicitor General Elizabeth Prelogar, Congress has funded other agencies in the past by similar means, including the Customs and Border Patrol. Francisco countered that agency collections practically limited those funding mechanisms, while CFPB was not subject to the same constraints.

Supreme Court Examines Funding Mechanism

GettyImages-1678652066 Elizabeth Warren

Elizabeth Warren (Photo by Chip Somodevilla/Getty Images)

Like J. Edgar Hoover and the FBI, Sen. Elizabeth Warren (D-MA) and the CFPB are so mated. While teaching at Harvard Law before entering electoral politics, she wrote about what such an agency could and should do. It was ushered into law as part of the Dodd-Frank bill and sold as a consumer protection vehicle along party lines, with only a few Republicans voting yes. When President Barack Obama appointed Warren assistant to the president and special adviser to the secretary of the Treasury on the Consumer Financial Protection Bureau in 2010, he said, “I am very grateful that Elizabeth has agreed to serve in this important role of getting the Consumer Financial Bureau up and running and making it as effective as possible.”

Warren would have been appointed the head of the agency, but Obama didn’t think she could get through Senate confirmation. He and top Democrats engineered a funding mechanism different from regular appropriations – instead from fees collected by the Federal Reserve. It was a workaround that has saved the agency from extinction – so far, at least. Chief Justice John Roberts called the Biden administration’s congressional funding theory “aggressive,” while Justices Sonia Sotomayor and Ketanji Brown Jackson challenged the notion that the funding mechanism was ahistorical.

Read More From Scott D. Cosenza, Esq.

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