Conservatives have never liked the Consumer Financial Protection Bureau, the brainchild of Massachusetts Sen. Elizabeth Warren. Now a conservative panel of the conservative U.S. Court of Appeals for the Fifth Circuit has struck down the CFPB’s rulemaking authority using a novel theory.
The court held that the mechanism Congress established to fund the bureau through the Federal Reserve is unconstitutional — even though it’s effectively the same as the mechanism used to fund the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration and the Federal Housing Finance agency, not to mention the Fed itself. The decision is logically almost indefensible, and the Supreme Court will now have to weigh in in order to overrule it, unless it wants to call into question the constitutionality of the rest of the financial regulatory state.
The first attack conservatives made on the CFPB involved a Supreme Court challenge to the way the director was insulated from political pressure by a for-cause removal provision. The justices held that provision unconstitutional in 2020. But they didn’t take the extreme step of invalidating the bureau’s regulations. Instead, they said the director had to be removable by the president.
