The Supreme Court rejects payday lenders' challenge to the Obama-era consumer protection agency

The Supreme Court on Thursday upheld the US Consumer Protection Agency, which was created under President Obama and Democrats in Congress to protect Americans from financial scams.

In a 7-2 vote, the justices rejected a constitutional claim by a coalition of backers who won before a panel of three Trump appointees of the 5th Circuit Court of Appeals.

The lower court had questioned the agency's legality, ruling that it was not properly “accountable to Congress” because it did not receive its funding through an annual appropriation.

Writing for the majority, Justice Clarence Thomas said that “the statute authorizing the agency to draw funds from the combined revenues of the Federal Reserve System to perform its functions satisfies the appropriations clause” of the Constitution.

Thomas said early American history shows that Congress could finance the government in a variety of ways, not just through an annual appropriation.

“Based on the text of the Constitution, the history against which that text was enacted, and the practice of Congress immediately after ratification, we conclude that appropriations need only identify a source of public funds and direct the expenditure of those funds for specified purposes authorize compliance with the credit clause. ,” He wrote.

Justices Samuel A. Alito Jr. and Neil M. Gorsuch disagreed.

Alito accused the court of upholding “a new legal system that allows the powerful CFPB to fund its own agenda without any control or oversight from Congress.”

Consumer advocates welcomed the decision.

“This ruling affirms the independent funding structure that has made the CFPB a successful advocate for protecting consumers and holding major banks, lenders and other financial institutions accountable,” said Devon Ombres, legal policy director for the Center for American Progress. A ruling in support from the 5th Circuit Court “could have jeopardized the entire financial regulatory system and thrown the financial markets into turmoil.”

Throughout American history, agencies and bureaus such as the Post Office, the National Mint, the Bureau of Customs, the Patent Office, and the Federal Reserve Board have been funded by fees, not by an annual appropriation from Congress. Congress decided to fund the CFPB through loan fees collected by the Federal Reserve.

Sen. Elizabeth Warren (D-Mass.) is said to have conceived the idea while she was a law professor. The agency was the focus of the 2010 Dodd-Frank overhaul of financial regulations following the collapse of the mortgage market.

Its mission was to protect borrowers and consumers against misleading and unfair practices by banks and mortgage lenders. It has returned more than $17.5 billion to injured customers.

But it has been steadily opposed by much of the credit industry and by many Republicans who believe the agency has too much unchecked power.

Congressional Democrats who created the agency tried to shield it from Washington politics, but that led to trouble in the courts.

Under 2010 legislation, the agency's director could not be removed by the president for political reasons, and the agency's budget was off-limits to Congress' annual appropriations process. Instead, the funding comes from the Federal Reserve, which earns fees from loans. The agency used $641 million of that money last year.

The Supreme Court's conservatives had viewed the agency skeptically. Four years ago, in a 5-4 decision, the justices rejected the director's independent status and ruled that the person could be removed by the president for any reason, including political differences.

The current dispute began as a challenge to a proposed regulation of payday lenders.

In their ruling for the lenders, the three judges of the 5th Circuit, all appointed by President Trump, said it violated the Constitution to protect the agency from an annual battle over its appropriation.

Judge Cory Wilson said that “the agency's continued isolation from Congress's appropriations power, including its express exemption from congressional control of its funding, renders it … no longer accountable to Congress and ultimately to the people.”

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