On October 3rd, the Supreme Court will hear one of the most important cases of the 2023-24 term (and perhaps modern American history): Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited.
The CFPB v. CFSA case is the latest battle in a nearly two-decade-long war between Big Business and the Consumer Financial Protection Bureau (CFPB), an independent agency created by the 2010 Dodd-Frank Act to protect consumers from abusive financial actors – including Big Banks, debt servicers and collectors, and predatory lenders.
It is that last group – payday lenders, specifically – that has brought forth this case, which argues that the CFPB’s independent funding mechanism (and by extension, its entire 12-year regulatory record) is unconstitutional and should be struck down. If the ethically-challenged, off-the-rails Roberts Court agrees with these extreme arguments, the consequences of CFPB v. CFSA include increased fraud in consumer finance markets, the unraveling of other key federal regulators and programs like Medicare, and even a catastrophic housing crisis that could spark a second Great Depression.
The stakes have never been higher. Here’s what you need to know about this pivotal upcoming case.
History Of The Case: How Did We Get Here?
In 2017, the CFPB issued a rule to stop abusive payday lenders from accessing Americans’ bank accounts without their consent. The Community Financial Services Association (CFSA) – a payday lender lobbying organization whose members have paid more than $204 million in fines and restitution to federal and state regulators – filed a lawsuit in 2018 challenging this rule and the constitutionality of the CFPB’s funding mechanism. Unlike federal departments like the Treasury or Department of Defense (which are funded by annual Congressional appropriations), the CFPB is funded independent of Congress via monetary transfers from the Federal Reserve, subject to an annual budget request submitted by the CFPB Director.
In October 2022, the Fifth Circuit Court of Appeals (whose far-right rulings have earned it the moniker “The Trumpiest Court in America”) sided with CFSA on the Appropriations Clause question and vacated the payday lending rule. In a 39-page ruling handed down by a panel of three Trump judges, the Fifth Circuit decreed that the CFPB’s funding was unconstitutional because it bypassed the Congressional appropriations process. Judge Cory Wilson, who authored the Fifth Circuit ruling, received over $10,000 in campaign contributions from banks regulated by the CFPB when he was a Republican candidate and member of the Mississippi State House from 2014 to 2018.
The CFPB appealed the Fifth Circuit’s ruling in November 2022. In February 2023, the Supreme Court agreed to hear the appeal as part of its 2023-24 term. Oral arguments are slated to begin Tuesday, October 3rd, 2023.
CFSA’s Arguments Are Sloppy And Without Precedent
In its SCOTUS filings, CFSA argues that the CFPB’s funding structure “subverts the Appropriations Clause’s text and structure, has no basis in history or tradition, and is not susceptible to any limiting principle.”
But according to legal experts at the Constitutional Accountability Center (CAC), each of these claims is false.
- Text and Structure: “Nothing in the Appropriations Clause even arguably requires agencies to be funded by annual appropriations. The Clause merely provides that ‘[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.’ As the Supreme Court has explained, the Clause ‘means simply that no money can be paid out of the Treasury unless it has been appropriated by an act of Congress.’ Or, to put it differently, “the payment of money from the Treasury must be authorized by a statute.” In other words, the executive branch may not unilaterally spend the nation’s money; Congress gets a critical say in how the nation’s money is spent. And that is exactly what happened here. Congress provided that the CFPB should be funded as necessary, up to a certain amount, by the Federal Reserve, which does not draw money from the Treasury. But if the Bureau ever needs additional funds, it has to come to Congress for an appropriation. As a result, no money is drawn from the Treasury except as a consequence of appropriations made by law. And that is all the Appropriations Clause requires.” [CAC, 10/24/22]
- History and Tradition: “Congress has long exercised the flexibility the Constitution gives it to fund agencies through means other than appropriations from the Treasury. As early as the 1790s, Congress authorized the post office to operate using permanent revolving funds, rather than withdrawals from the Treasury. In more recent years, Congress has similarly chosen to use independent funding sources for agencies such as the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Housing Finance Agency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Public Company Accounting Oversight Board.” [CAC, 10/24/22]
- Limiting Principles: “[The CFPB] is still subject to congressionally imposed limits. The CFPB receives most of its funding from the Federal Reserve System, which itself is financed by interest on securities and fees paid by banks. When Congress created the Bureau, it established a cap on this funding, which annually cannot exceed 12 percent of the Fed’s operating expenses in 2009, adjusted for inflation. To receive funding beyond this cap, the CFPB must seek additional appropriations from Congress. The Bureau’s finances are also audited annually by the Government Accounting Office, an arm of Congress.” [CAC, 10/24/22]
Legal journalist Ian Millhiser concurs in a recent piece for Vox, calling CFSA’s arguments “simultaneously some of the silliest and some of the most dangerous ideas ever presented to the Supreme Court.” Pointing to the DOJ’s filings in this case, Milhiser notes that the 2022 omnibus spending law contains more than 400 provisions that would be invalid under CFSA’s reading of the Appropriations Clause. Milhiser further notes that, before the Fifth Circuit’s ruling, no court in the history of the United States had ever held that an Act of Congress (like Dodd-Frank) violated the Appropriations Clause.
Milhiser traces the origins of CFSA’s baseless and unprecedented arguments to Fifth Circuit Judge Edith Jones, a former general counsel to the Texas GOP and Reagan appointee to the federal bench. In an opinion filed in a previous case concerning the CFPB, Jones outlined the novel idea that the Appropriations Clause limits Congress’ power to delegate permanent appropriations for federal agencies – an idea borrowed heavily by both CFSA and the Fifth Circuit for the current case. As Milhiser notes, Jones failed to cite any compelling evidence from the Constitution’s Framers or “a single government official, at any level of the federal or any state’s government” supporting this idea. Her theory, says Milhiser, “has no basis in any legal text, and barely any support in all of the scholarship that has ever been produced by the American legal academy since the Constitution took effect in 1789.”
This finding, crucially, has also been expressed by other members of the federal judiciary. In March 2023, the Second Circuit Court of Appeals upheld the CFPB’s funding mechanism as constitutional and fully rejected the Fifth Circuit’s arguments. The three-judge panel ruling was notably a bipartisan one: Judge Amalya Kearse (a Carter appointee), Judge John M. Walker Jr.(an H.W. Bush appointee) and Judge Richard Sullivan (a Trump appointee) all agreed that they “[could not] find any support for the Fifth Circuit’s [Appropriations Clause] conclusions in Supreme Court precedent.”
What Happens If The Payday Lenders Win?
If the Supreme Court decides to uphold the Fifth Circuit’s sloppy and dangerous arguments, the consequences would be dire. As the American Prospect’s David Dayen put it, an affirmation of the Fifth Circuit could “lead to significant collateral damage that the gleeful destroyers of consumer protection haven’t thought through.”
Depending on the scope and exact nature of a pro-CFSA ruling, they include:
- CFPB Defunded By GOP Congress: The most immediate consequence of the CFPB’s independent funding mechanism being struck down is that the Bureau’s budget would now be decided annually by Congress. In the current House, that means the CFPB’s fate would be in the hands of industry-bankrolled Republicans who have repeatedly promised to defund the Bureau and are prone to triggering government shutdowns over volatile intra-party conflicts. This is exactly what the CFPB’s architects sought to insulate the Bureau from when drafting the original Dodd-Frank law.
- Other Financial Regulators Struck Down: As CAC has noted, many other vital financial regulators are funded in the exact same way as the CFPB, including the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Housing Finance Agency. If the Supreme Court extends the Fifth Circuit’s logic to non-CFPB regulators, it would defund agencies vital to the proper functioning of the U.S. banking system and likely trigger another financial crisis.
- Threats To Medicare/Social Security: The Fifth Circuit’s radical Appropriations Clause argument doesn’t just threaten federal agencies. As Dayen has noted, it could also gut federal programs like Medicare and Social Security that are funded outside of the appropriations process.
- Rollback Of CFPB Regulatory And Enforcement Work: A broader pro-CFSA Supreme Court ruling could lead to the invalidation of the CFPB’s entire 12-year regulatory portfolio, on the grounds that the Bureau’s decade-plus of consumer protection activity (and even pre-Dodd-Frank rules the Bureau inherited) was all funded illegally. This would mean that major consumer protections and enforcement actions against lawbreaking corporations like Wells Fargo would be scrapped. There is strong reason to believe this will happen – several companies currently being sued by the CFPB for violating consumer protection laws are already invoking the Fifth Circuit’s rulings to get their cases dismissed.
- Housing Market Meltdown And Second Great Depression: As Milhiser and Dayen have observed, the Fifth Circuit’s ruling is so extreme that some banking industry groups are panicking that a CFSA Supreme Court victory could result in mass confusion that freezes the mortgage market. With home building, home sales, and other mortgage-related industries constituting a sizable 17 percent of the U.S. economy, a ruling that grinds these industries to a halt could, to quote Milhiser, “trigger economic devastation unheard of since the Great Depression.” It’s a worst case outcome that’s also frighteningly possible.
The Real Reason Why The CFPB Is Under Attack
The CFSA lawsuit has nothing to do with upholding the Constitution or “protecting the rule of law”. On the contrary – it has everything to do with gutting an agency that has been highly effective at enforcing the law and protecting Americans from powerful financial predators.
Consider the CFPB by the numbers – in just 12 years as consumers “cop on the beat,” the Bureau has:
- Returned an astounding $17.5 billion to consumers’ pockets in the form of monetary compensation, principal reductions, canceled debts, and other relief.
- Imposed $4 billion in civil penalties against corporate scammers who have ripped off consumers and deposited that money into a victims relief fund.
- Made 200 million consumer accounts eligible to receive financial relief.
- Provided access to a financial literacy database to over 50.1 million users.
- Collected over 4 million consumer complaints.
Under the leadership of Biden CFPB Director Rohit Chopra, the CFPB has taken critical action on junk fees, consumer data protection, medical debt, and student loan servicing and lending. Chopra has also come out swinging against companies that prey on our society’s most vulnerable groups, including immigrants, people of color, veterans, and the poor. And he’s amassed a stellar enforcement record against the biggest corporate repeat offenders in America, including TransUnion, Bank of America, and Wells Fargo.
The CFPB’s proven track record of success has made it enormously popular among voters across the political spectrum. According to polling conducted by Lake Research Partners: 79% of Americans – including 86% of Democrats, 75% of Republicans, and 64% of independents – support the Bureau.
Who’s Supporting The Payday Lenders?
A rogues gallery of corporate predators, rip-off artists, and industry-funded right-wingers have filed briefs supporting CFSA in its Supreme Court battle. They include:
- Jones Day (The Trump Administration’s Favorite Law Firm): Right-wing law firm Jones Day, which defended the Trump campaign in over 20 lawsuits and picked judges for Trump to nominate to the federal bench, is representing CFSA in its Supreme Court fight. The firm has represented some of the worst clients you can think of, including crooked ex-Virginia Governor Bob McDonnell, Big Tobacco giant RJ Reynolds, and even the Bin Laden family. CFSA’s lead counsel in the Supreme Court case is Noel Francisco, who previously served as Trump’s hardline conservative Solicitor General.
- The U.S. Chamber of Commerce: America’s largest corporate lobbying group is one of the CFPB’s oldest foes, and has spent millions fighting its regulatory initiatives tooth-and-nail since before the CFPB even existed. The Chamber’s members include multiple big banks with a history of lending discrimination. As I reported last year, four Chamber board members and three Chamber executives (including Chamber President Suzanne Clark), have advised or worked for corporations that CFPB Director Rohit Chopra has singled out for predatory behavior – including notorious repeat offender TransUnion.
- Insurrection Mastermind John Eastman: Despite facing disbarment and multiple indictments for aiding Trump’s efforts to overturn the 2020 election, “coup memo” author John Eastman has filed an amicus brief on behalf of the far-right Claremont Institute backing CFSA in this case. Claremont’s donors include multiple right-wing billionaires who would benefit from rollbacks of consumer protection laws, including Betsy and Dick DeVos.
- Corrupt Ex-CFPB Director Mick Mulvaney And His Racist Assistant: Trump’s hand-picked CFPB Director Mick Mulvaney, who sabotaged the Bureau at the behest of his former payday lender donors, has urged SCOTUS to gut his former agency. Mulvaney currently co-chairs a lobbying firm that represents crypto influencer Bitboy Crypto and financial consultant Chargebacks911, which was sued by the FTC earlier this year for “unfairly thwarting consumers who were trying to dispute credit card charges through the chargeback process.”. Mulvaney was joined in his amicus by his former aide Eric Blankenstein, who resigned in disgrace from the CFPB after his racist old blog posts were unearthed.
- The Koch Empire: Americans For Prosperity (AFP), a right-wing astroturf group bankrolled by libertarian billionaire Charles Koch (more on him later!), has filed an amicus backing CFSA. AFP has a long history of attacking the CFPB and lobbying to roll back Dodd-Frank.
- Industry-Funded Republican Members Of Congress: 132 Republican members of Congress – including party leaders like Mitch McConnell and MAGA extremists like Paul Gosar – have co-signed an amicus supporting CFSA’s lawsuit. According to watchdog Accountable.US, these 132 Republicans have taken a jaw-dropping combined $51 million in campaign contributions from the financial sector and other industries regulated by the CFPB.
- Disgraced Revolving Door Republican Former Lawmakers: 21 Republican former members of Congress (all of whom took huge campaign donations from anti-CFPB special interests during their time in Congress) have filed their own amicus supporting CFSA’s lawsuit. The signatories – many of whom are now either corporate executives or lobbyists for anti-consumer corporate offenders – include the scandal-plagued former Senate Majority Leader Trent Lott and ex-HHS Secretary Tom Price.
- Republican State Attorneys General (AGs): 27 Republican State AGs (including notoriously anti-immigrant Kansas AG Kris Kobach and recently-impeached Texas AG Ken Paxton) are supporting CFSA’s lawsuit. According to Accountable.US, the Republican Attorneys General Association has taken over $7.7 million from anti-CFPB industry groups since CFSA’s original lawsuit was filed in April 2018.
- Debt Collectors: ACA International, the largest trade group for debt collectors, has filed an amicus supporting CFSA’s lawsuit. According to Accountable.US, ACA International members have been hit with over $71 million in fines and restitution by the CFPB since 2018.
And Who’s Standing Up To Their Dangerous Power-Grab?
Defending the CFPB in this high-stakes case is a broad coalition that includes top progressive lawmakers, esteemed financial regulation scholars, longstanding consumer advocates, and various public interest groups representing the diverse constituencies served by the CFPB and other independent agencies.
- Democratic Lawmakers (Current And Former): 144 current and former Democratic members of Congress have filed an amicus brief strongly opposing the Fifth Circuit’s radical interpretation of the Appropriations Clause. The signatories span the entire Democratic Party, from progressives like Bernie Sanders and Katie Porter, to moderates like John Hickenlooper and Colin Allred, to party leaders like Chuck Schumer and Hakeem Jeffries. The amicus is also co-signed by key framers of the CFPB, including both Chris Dodd and Barney Frank and Bureau architect Elizabeth Warren.
- Democratic State Attorneys General (AGs): 24 Democratic State AGs have co-signed an amicus brief opposing the CFSA’s lawsuit. They include AGs with a robust record of consumer protection (often in collaboration with the CFPB itself), including New York’s Letitia James and Minnesota’s Keith Ellison.
- Consumer Protection Organizations: 10 leading consumer advocacy and protection groups have co-signed an amicus rebutting the Fifth Circuit’s interpretation of the Appropriations Clause. They include long-standing organizations like Public Citizen, Consumer Action, Consumer Reports, and the National Consumer Law Center.
- Financial Regulation Scholars: Georgetown Law Professor Adam Levitin and Boston College Law Professor Patricia McCoy – two esteemed financial regulatory experts – have filed an amicus explaining in pain-staking detail the real-world catastrophic economic risks of upholding the Fifth Circuit’s ruling.
- Civil Rights Organizations: 12 national and state civil rights organizations – including the Lawyer’s Committee for Civil Rights, National urban League, and National Women’s Law center – have filed an amicus opposing the CFSA’s lawsuit, noting the “especially grave effects in marginalized communities” of the Fifth Circuit’s ruling.
- Military And Veterans Organizations: 15 veterans and military servicemember advocacy organizations – joined by former CFPB Assistant Director and veteran advocate Holly Petraeus – have filed an amicus highlighting the CFPB’s many servicemember and veteran protection activities that would be gutted if the Fifth Circuit’s ruling were upheld.
- Farmer And Rural Advocates: Farm Action, the HEAL Food Alliance, the Institute for Agriculture and Trade Policy, Partners for Rural Transformation, and the Rural Coalition have co-signed an amicus rejecting CFSA’s arguments, noting that the Fifth Circuit’s interpretation of the Appropriations Clause could also be used to gut the Farm Credit Administration – a lending lifeline to farmers and ranchers.
- Small Financial/Lending Institutions: Several small lenders and community development financial institutions (CDFIs) have co-signed an amicus warning that an adverse ruling suspending the CFPB’s operations would wreak havoc on the financial markets they serve.
- AARP: The American Association of Retired Persons (AARP) Foundation has filed an amicus warning of the crucial consumer protections for older adults and retirees (who are particularly vulnerable to financial scams involving new technologies) that would be gutted if the Fifth Circuit’s ruling were upheld.
- National Treasury Employees Union (NTEU): The federal workers union representing the CFPB’s employees has filed an amicus specifying in detail how an affirmation of the Fifth Circuit’s ruling would immediately halt the Bureau’s work processing consumer complaints, aiding servicemembers, and offering guidance to new industry entrants.
As noted earlier, the payday lending lobby’s arguments are also so extreme that several real estate industry associations (who would otherwise oppose the CFPB) have also urged the Supreme Court to roll back the Fifth Circuit’s ruling. In a July 2023 amicus brief, the Mortgage Bankers Association, National Association of Home Builders, and National Association of Realtors warned that affirming the Fifth Circuit’s ruling could “destabilize the mortgage market.”
Will Our Corrupt Supreme Court Do The Right Thing? (And What To Do If They Don’t)
The fate of the CFPB – indeed, the fate of our economy and country — is now in the hands of the right-wing Roberts Court. Given recent revelations about its lax ethical standards, that’s cause for concern.
The CFSA case is deeply entangled in the Supreme Court’s mounting ethics scandals. Justice Clarence Thomas is at the center of most of these, which of have led to widespread calls for his resignation or impeachment and removal from office:
- The Koch Empire: ProPublica has found that Thomas secretly attended donor summits of the right-wing advocacy organization funded by billionaire Charles Koch. Koch-funded Americans For Prosperity, which has spent years lobbying to gut Dodd-Frank, has filed an amicus brief supporting CFSA. The Koch business empire includes investments in the financial industry that are “directly threatened” by Dodd-Frank and other consumer protection measures.
- Harlan Crow/NMHC: According to ProPublica, Thomas has received lavish undisclosed gifts from billionaire property developer Harlan Crow. For years, Crow and his real estate empire have bankrolled the National Multifamily Housing Council (NMHC) – a landlord lobbying group that has opposed CFPB regulation of the tenant screening industry.
- John Eastman: The indicted (and soon-to-be-disbarred) former Trump attorney, an amicus filer in the case, is a former Thomas law clerk who corresponded with Thomas’ wife Ginni ahead of the January 6th attack on the Capitol.
- Horatio Alger Association: According to the New York Times, Thomas has received lavish undisclosed gifts from wealthy conservative members of the Horatio Alger Association, an elite association for whom Thomas has granted rare annual private use of the Supreme Court chambers. At least 18 members of the Alger Association have a vested interest in the Supreme Court gutting the CFPB, including top executives at major banks, real estate firms, auto lenders, and recent CFPB offenders Berkshire Hathaway and Madison Dearborn Partners
But Thomas is not alone in having conflicts of interest in the CFSA case. According to Accountable.US, Paul Singer – a hedge fund manager and Republican megadonor who took Justice Samuel Alito on an unreported luxury fishing trip in 2008 – holds at least $90 million in financial companies overseen by the Consumer Financial Protection Bureau. Alito did not recuse himself from at least 10 subsequent cases involving Elliott Management (Singer’s hedge fund) that came before SCOTUS, nor has he recused himself from the upcoming CFSA case.
Though we at the Revolving Door Project have urged both Thomas and Alito to recuse from the CFSA case in light of their glaring conflicts of interest, their well-established contempt for good governance and democratic accountability offer little hope they will heed our advice.
This raises a larger issue that is increasingly on the country’s mind: the rapidly declining legitimacy of the Supreme Court itself, blame for which can be laid squarely at the feet of the Court’s reactionary and corrupt Republican majority. The continued existence of the Supreme Court’s right-wing supermajority is an affront to democracy itself.
- Republicans have controlled the Court for more than 50 years, despite losing the popular vote in 7 of the last 8 presidential elections. Five of the nine current justices – a majority of the Court – were appointed by Republican presidents who first took office after losing the popular vote.
- Donald Trump and Mitch McConnell defied the will of the American public to pack the Supreme Court in their favor. In 2016, McConnell – claiming voters were owed a say in filling the late Antonin Scalia’s seat – shrunk the size of the Court to eight seats for more than a year by refusing to hold hearings for Obama-nominated Merrick Garland, effectively stealing the vacant seat for Trump’s nominee Neil Gorsuch. Four years later (and mere weeks before a presidential election) McConnell did a blatant about-face by rushing through the confirmation of Trump nominee Amy Coney Barrett, despite the fact that 63 million people had already cast ballots in the election that would ultimately unseat Trump.
- More than two-thirds of Americans alive today were not yet born the last time the Court had a Democratic-appointed majority. Given structural biases in the U.S. Senate and Electoral College that favor Republicans, the Court’s current 6-3 Republican supermajority is likely to last until at least 2065 absent major reform.
Thomas and Alito’s failure to recuse in CFPB v. CFSA only further underscores that there is only one real solution to the SCOTUS legitimacy crisis: Expand The Court. When the most powerful branch of government refuses to behave ethically and instead acts like a policy shop for hire by corporate interests, Congress has a constitutional obligation to check and balance it. Court expansion — the only major proposed reform to our nation’s highest court with a firm historical tradition — would instantly rebalance the bench, restore the Court’s integrity, and align it more closely with the will of the public (i.e. the people it is supposed to serve). Without reform, the Supreme Court will only continue to issue radical pro-corporate, anti-worker, and anti-consumer decisions.
America deserves a government that defends democracy from dangerously concentrated corporate power and protects the American people from lawless predators – not one that enriches the powerful by selling out the public interest to the highest bidder.
- The War on the Consumer Financial Protection Bureau: Community Financial Services of America v. CFPB [Shahid Naeem & Joe Gaeta, American Economic Liberties Project, August 2023]
- As Wrong as It is Dangerous: The Fifth Circuit’s Decision Holding the CFPB Funding Structure Unconstitutional [Brianne J. Gorod, Brian R. Frazelle & Alex Rowell, Constitutional Accountability Center, 10/24/22]
- An Overview Of The History Of American Financial Regulation [Dylan Gyauch-Lewis, Revolving Door Project, 2/21/23]
- Conservative Judicial Ruling Threatens Functioning of Daily Life [David Dayen, The American Prospect, 10/21/22]
- A New Supreme Court Case Could Trigger a Second Great Depression [Ian Milhiser, Vox, 9/23/23]