Even some conservative justices sounded skeptical of arguments that the agency, created after the 2008 financial crisis to regulate mortgages, car loans and other consumer finance, violates the Constitution in the way it is funded.
The CFPB case is one of several major challenges to federal regulatory agencies on the docket this term for a court that has for more than a decade been open to limits on their operations. The CFPB, the brainchild of Democratic Sen. Elizabeth Warren of Massachusetts, has long been opposed by Republicans and their financial backers.
But a majority of the court appeared ready to reject the sweeping arguments made by the lawyer for payday lenders whose challenge to a CFPB rule spawned the Supreme Court case. A ruling for the agency also would quiet concerns about the validity of the CFPB’s actions since its creation.
Unlike most federal agencies, the consumer bureau does not rely on the annual budget process in Congress. Instead, it is funded directly by the Federal Reserve, with a current annual limit of around $600 million.
The federal appeals court in New Orleans, in a novel ruling, held that the funding violated the Constitution’s appropriations clause because it improperly insulates the CFPB from congressional supervision.
Embracing that ruling, lawyer Noel Francisco said on behalf of the lenders Tuesday that Congress can’t hand so much power to an executive branch agency. “This is a perpetual delegation to pick your own number,” said Francisco, who served as the Trump administration’s top Supreme Court lawyer.
But several justices pushed back against his arguments.
“Congress could change it tomorrow. There’s nothing permanent or perpetual about this,” Justice Brett Kavanaugh said.
Justice Elena Kagan said that Francisco’s arguments were “flying in the face of 250 years of history.”
Justice Samuel Alito was the most aggressive questioner when Solicitor General Elizabeth Prelogar, the Biden administration’s top lawyer, defended the CFPB.
While the U.S. Chamber of Commerce and some other business interests backed the payday lenders, mortgage bankers and other sectors regulated by the CFPB cautioned the court to avoid a broad ruling that could unsettle the markets.
Three years ago, the court decided another CFPB case, ruling that Congress had improperly insulated the head of the bureau from removal. The justices said the director could be replaced by the president at will, but allowed the agency to continue to operate.