May 16, 2024 - Economy

Supreme Court brushes off payday lenders' challenge to consumer watchdog's funding

Consumer Financial Protection Bureau (CFPB) headquarters in Washington, DC, US, on Thursday, May 9,

Consumer Financial Protection Bureau headquarters in Washington, D.C. Photo: Tierney L. Cross/Bloomberg via Getty Images

The funding structure of the Consumer Financial Protection Bureau (CFPB) passes constitutional muster, the Supreme court ruled Thursday, rebuffing a challenge from payday lenders.

Why it matters: The CFPB was created in the wake of the 2008 financial crisis and plays a crucial role in regulating things like mortgages and car loans, protecting consumers from predatory practices by banks and other financial firms.

The big picture: In approving the CFPB's funding model, the Supreme Court reversed a lower court ruling and rejected a conservative-led challenge brought by payday lenders.

  • Justice Clarence Thomas, who authored the majority opinion, wrote that the CFPB's model complies with the Constitution's Appropriations Clause.
  • "The statute that provides the Bureau's funding meets these requirements. We therefore conclude that the Bureau's funding mechanism does not violate the Appropriations Clause," Thomas wrote.
  • The Supreme Court justices ruled 7-2 with Justices Samuel Alito and Neil Gorsuch dissenting.

Zoom out: Many consumer advocates and progressives breathed a sigh of relief over the ruling.

  • By upholding the CFPB's funding structure, the agency "stands to continue fighting to protect the American people from corporate bad actors, fraudsters, and scammers," Devon Ombres, senior director for Courts and Legal Policy at the Center for American Progress, said in a statement.
  • Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending, also cheered the ruling as a "welcome dose of common sense."
  • The ruling "rejected an unprecedented, reckless argument that could have destabilized a housing market that undergirds our economy and invited challenges to funding for most of the federal government, including Medicare and the Federal Reserve," Chabrier said.

Go deeper: The fate of a financial watchdog rests in the Supreme Court's hands

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