US consumer watchdog funding unconstitutional, court rules

(Reuters) – A federal appeals court ruled on Wednesday that the US Consumer Protection Bureau’s funding apparatus is unconstitutional, blaming a system designed by Democrats to isolate the agency from seeking credits from Congress.

Fifth US Court of Appeals, New Orleans Rule That independent funding of the CFPB through the Federal Reserve rather than budgets passed by Congress violated the principles of separation of powers in the United States Constitution.

That ruling, by a panel of three judges appointed by former Republican President Donald Trump, overturned a 2017 regulation the agency had adopted aimed at combating “unfair and abusive” practices in the payday lending industry.

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The American Community Financial Services Association filed a lawsuit in 2018 to challenge the rule, which prevented lenders from making a new attempt to withdraw money from an account in which two consecutive attempts failed unless consumers agreed.

“Even among self-funded agencies, the office is unique,” ​​U.S. Circuit Judge Corey Wilson wrote. “The firm’s permanent, self-directed, dual funding structure goes a step further than that enjoyed by the other agencies on offer.”

A CFPB spokesperson said in a statement that “there is nothing new or unusual about Congress’ decision to fund the CFPB outside of annual spending bills.” It can ask the full Fifth Circuit to reconsider the case or appeal to the U.S. Supreme Court.

Trade group representatives did not respond to requests for comment.

The ruling was the latest in a series of legal challenges to the CFPB, which Congress created in 2010 by passing the Dodd-Frank Act during former Democratic President Barack Obama’s tenure in response to the 2008 financial crisis.

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Republicans have long opposed the agency. The Supreme Court ruled in 2020 in another case that the protections Congress granted to the director of the CFPB, who can only be fired for a reason, were unconstitutional.

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(Nate Raymond reports from Boston). Editing by Stephen Coates

Our criteria: Thomson Reuters Trust Principles.

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