Federal appeals court rules Congress upended separation of powers in creating CFPB

A federal appeals court on Wednesday delivered a blow to the Consumer Financial Protection Bureau, ruling Congress ran afoul of the Constitution when it delegated its financial authority to an executive agency.

The CFPB gets funding directly from the Federal Reserve, not through Congress’ appropriations, which runs afoul of the separation of powers, a three-judge panel from the 5th U.S. Circuit Court of Appeals said.

The 39-page ruling invalidates the Payday Lending Rule, which became effective in 2018. It restricted lenders ability to provide consumers with loans unless they’ve determined they have the ability to repay them according to certain terms, and also restricted a lenders’ account access to repay loans.

The three-judge panel reasoned that Congress appropriates funds via the Appropriations Clause — but handed over that authority when it created the CFPB, giving the agency unchecked power.

“Congress ran afoul of the separation of powers embodied in the Appropriations Clause,” wrote Judge Cory T. Wilson, a Trump appointee, for the court.

The CFPB was created during the Obama administration and has been a target of conservatives for years.

In 2020, the Supreme Court ruled the CFPB’s structure outlined for removing the agency director also ran afoul of the Constitution, because at the time it did not allow a president to remove the agency head without cause.

Sen. Ben Sasse, Nebraska Republican, hailed the 5th U.S. Circuit Court of Appeals’ ruling as a victory for lawmakers.

“This is a win for the basic proposition that laws ought to be written by people who can be hired and fired on Election Day. This decision is simple: The CFPB’s funding structure created a fourth branch of government that’s not accountable to Congress. That’s just not how self-government works. This straightforward decision is a win for the rule of law,” he said.

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