How Congress can fix a Supreme Court curveball on the CFPB

The Consumer Financial Protection Bureau is a government agency like no other. Not only is the agency responsible for enforcing consumer financial protection laws, it also oversees the practices of bank and non-bank consumer financial institutions alike.

With such a wide purview to regulate the economic lives of all Americans, one would assume that the CFPB would operate under some sort of supervisory board like the Securities and Exchange Commission or Federal Trade Commission, or that its funding would be controlled directly by Congress like other market regulators. But none of that is true. And that’s a problem.

This means that where the CFPB engages in regulatory overreach or malpractice, Congress — and by extension voters — has few tools to address actions by the agency that are harmful to American’s economic interests.

Worse still is the fact that because the CFPB is not governed by a bipartisan board, but instead by a single director, the actions the agency takes are vulnerable to being driven by ideological agendas and not reasoned economic analysis.

What does this lack of accountability look like in practice? Let’s take one recent example. In February, the CFPB proposed a new rule to dramatically lower the cap on late fees that can be charged by credit cards. The agency itself acknowledges that this action will hurt consumers who pay their credit card bills on time by forcing them to subsidize the costs of those who don’t. According to a recent poll, consumers believe by a 21-point margin that a decrease in credit card late fees will result in more people making late payments. Late payments have negative consequences to consumers such as incurring interest charges or reductions in credit scores.

The CFPB — despite claiming to be independent — did so at the behest of the Biden administration. The result, should this rule go into effect, would be a reduction in credit card benefits and choice for all consumers.

If Congress were inclined to object to this decision by the CFPB, it cannot use one of its most-common remedies: the power of the purse. This tool is commonly used by both political parties in Congress to influence the work of various federal agencies. But because the CFPB is not funded through the regular appropriations process, Congress, and by extension the American people, have almost no recourse to correct the agency’s wrongdoing.

This means there is less democratic control or oversight of an agency that has significant regulatory authority over Americans’ economic lives.

Rep. Andy Barr (R-Ky.) recognized this issue as early as 2015 when he first introduced the Taking Account of Bureaucrats’ Spending (TABS) Act. The legislation would subject the CFPB to the traditional appropriations process but despite this issue being debated for a decade, Congress has yet to enact legislation.

It is for precisely these reasons that the 5th Circuit Court of Appeals ruled in October 2022 that the CFPB’s funding mechanism is unconstitutional. This question is currently pending before the U.S. Supreme Court in Consumer Financial Services Association v. CFPB. The case is expected to be argued later this summer.

In the event the Supreme Court agrees with the ruling of the 5th Circuit, finding the CFPB’s funding mechanism to be unconstitutional, it could rule the CFPB cannot act further until provided funding by Congress. It could also reach an opinion about the CFPB’s prior actions, including the regulations it issued and how it enforced the laws, given these were undertaken with funds not appropriated by Congress. We believe the Supreme Court can reach a remedy that subjects the CFPB to the congressional appropriations process with minimal disruption to its previous actions.

Congress can save the court and consumers from the trouble of such uncertainty. By simply subjecting the CFPB to the proper budget oversight via the appropriations process and establishing a bipartisan commission to run it, Congress can finally take a large step towards fixing the constitutional flaws of an agency it created well over a decade ago.

Bill Hulse is Senior Vice President of the Chamber’s Center for Capital Markets Competitiveness.