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Fifth Circuit declares Consumer Financial Protection Bureau unconstitutional

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Three judges appointed by former President Donald Trump made a surprising decision Wednesday, ruling that the Consumer Financial Protection Bureau, the federal agency tasked with protecting consumers from a wide variety of predatory activities by lenders and other financial services, is unconstitutional and mandated. should be stripped of its authority.

The Conservative United States Court of Appeals for the Fifth Circuit’s ruling is based on a new interpretation of an ambiguous provision of the Constitution and is in stark contrast to a Supreme Court ruling that refused the Fifth Circuit’s reading of that provision. This is not the unusual behavior of the Fifth Chamber, which reads the Constitution in new and unexpected ways, often to the benefit of political conservatives and the Republican Party.

Indeed, Judge Cory Wilson, in the court’s new opinion, Community Financial Services v. CFPB Any court that “considers” the arguments presented in this case has deemed the CFPB “constitutionally sound”.

If the three Trump judges’ verdicts stand, it would effectively neutralize much of the federal government’s ability to combat financial fraud – but that outcome is unlikely given the fact that the Fifth Circuit’s decision was so contradictory. As Wilson explains, the CFPB undertook the enforcement of “more than 18 federal laws” when it was formed nearly a dozen years ago, and these laws “cover everything from credit cards to car payments to mortgages and student loans.”

Meanwhile, the agency is also “implementing a comprehensive new ban on ‘any unfair, deceptive or abusive act or practice’ by certain participants in the consumer finance industry. All these consumer protections could evaporate if the Fifth Circuit’s decision goes in the Supreme Court’s favour.

CFPB constitutional

In the judges’ decision Community Financial Services v. CFPB, It opens up a somewhat unconventional way of funding the CFPB.

Most federal agencies receive an annual appropriation from Congress, which can be amended each year during legislative deliberations on federal spending. However, many agencies have separate sources of funding, such as the ability to collect fees or appraisals from the entities they regulate, and do not rely on the annuity process to fund their operations.

This arrangement, where an agency has a constant source of funding regardless of what Congress decides to do in the annual debate on federal spending, is especially common among financial regulators. The Federal Reserve, the Federal Deposit Insurance Corporation, the Federal Home Finance Corporation, the National Credit Union Administration, and the Office of the Currency Supervisor are funded outside of the annual allocation process. So is CFPB.

Nothing in the Constitution prevents Congress from funding organizations in various ways. Congress can fund an agency through an annuity, a five-year appropriation, or a 500 annuity. It may also authorize the agency to collect fines or fees to finance its activities.

The Constitution states that “No money will be taken from the Treasury, but as a result of the Allowances made by Law”. However, as the Supreme Court decided Cincinnati Soap Co. / United States of America (1937), this provision “means that no money can be paid from the Treasury unless allocated by resolution of Congress.” Therefore, if the federal government wants to spend its money, Congress must pass a law that allows it.

But Congress made Passing the CFPB and a law establishing its financing structure, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which allows the Federal Reserve to transfer 12 percent of its “total operating expenses” to the CFPB each year, the CFPB’s at the request of.

This funding mechanism is constitutional as it is enacted by Congress.

Fifth Circuit sets a new limit on how Congress can fund federal agencies

The logic of the Fifth Circuit Community Financial hard to decipher, but the three judges essentially argue that the CFPB is unconstitutional because its funding went through the Federal Reserve before it arrived at the CFPB—another agency that wasn’t funded through the annual congressional appropriations process.

Wilson’s view describes this financing structure as “double-isolated financing” because the CFPB’s money goes through two institutions that are not subject to annuities, and he claims this type of financing structure is “unique.” He also thinks this unconventional funding structure is problematic because none of the other institutions, insulated from the annuity process, have an authority that is remotely comparable to an “executive or regulatory authority.” [CFPB] applicable throughout the economy.”

This last statement is questionable given that one of the other institutions insulated from annuities is the Federal Reserve itself, which controls the U.S. money supply and has extraordinary power over the global economy. only on investors’ assumptions about what the Federal Reserve might do in the future.

In any case, the Constitution does not say that “double-isolated” institutions are unconstitutional. It also doesn’t say that Congress should fund powerful agencies, unlike less powerful agencies. It simply says that Congress must pass a law funding an agency, before that agency spends money to perform its functions.

And in this case, Congress passed such a law.