Supreme Court Rejects Payday Lender Effort To Gut The Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau’s funding mechanism is not unconstitutional, the U.S. Supreme Court ruled on Thursday.

The court’s decision in the case of CFPB v. Community Financial Services Association saves the consumer financial regulator from an effort by payday lenders to invalidate every action it has taken since it was established in 2010.

The 7-2 decision was authored by Justice Clarence Thomas, a stalwart conservative on the court. Justice Samuel Alito dissented and was joined by Justice Neil Gorsuch.

The lawsuit began in 2017 after the payday lender trade group sued to overturn a CFPB rule prohibiting illegal debits from bank accounts. The payday lenders argued against the rule and that the CFPB and all of its actions since 2010 were unconstitutional due to its particular funding structure.

Created in the wake of the 2008 global financial crisis, Congress created the CFPB to protect consumers from predatory financial practices that played a role in the subprime mortgage debacle. In doing so, lawmakers sought to insulate the new agency from industry influence by funding it outside the ordinary appropriations process. The agency would be housed inside the Federal Reserve and allowed to draw up to $600 million in funds from the Fed’s treasury annually.

In the suit, the payday lenders argued that this funding mechanism violated Article I, Section 9 of the Constitution, also known as the Appropriations Clause, which states that “[n]o money shall be withdrawn from the Treasury, but in Consequence of Appropriations made by Law,” and that the mechanism wrongfully gave the agency “perpetual” funding.

The Court disagreed. Thomas wrote in the majority decision: “Under the Appropriations Clause, an appropriation