The Consumer Financial Protection Bureau (CFPB), brainchild of former law professor Elizabeth Warren, now a U.S. Senator, has survived a crucial legal test in the Supreme Court, which issued a 7-2 decision upholding its funding mechanism on Thursday, May 16, 2024 (read story here).
Warren proposed a federal consumer protection agency in 2007 and her idea was included in the Dodd-Frank financial reforms passed by Congress in the wake of the 2007-2008 financial crisis and Great Recession. As always happens — and about the only time it happens — another market failure and collapse led to laissez-faire capitalism being put on an ever shorter leash.
The CFPB’s jurisdiction includes “banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors, and other financial companies operating in the United States,” with priority placed on “mortgages, credit cards and student loans” (quoted from Wikipedia article here). This is narrower than state consumer agencies, which typically handle consumer complaints of all kinds.
The great English storyteller Joseph Conrad wrote about people in “white sepuchral cities” going about trying to “filch a little money from each other” in his famous short novel “Heart of Darkness” about the late 19th century Congo ivory trade, which is actually an examination of human immorality.
His “filching” phrase is a visualization of the parasite classes living off the productive labor of the working classes. Taking from others requires less effort, and pays better, than working or honest enterprise, which is why shady activities are timeless and endemic in human societies. In Conrad’s time, the ivory trade was a path to easy riches; today ivory poaching still is.
Payday lenders, an industry that viciously exploits the poor, hate the CFPB. They sued hoping to destroy it. Their lawyers argued the agency is illegal because its funding comes from the Federal Reserve, instead of congressional appropriation, which dissenting Justices Alito and Gorsuch complained deprives Congress of control and oversight of the agency.
It’s true that most (but certainly not all, notably the Federal Reserve itself) federal agencies are directly funded by Congress. That can make their funding volatile, and force them to furlough employees and curtail operations, or shut their doors, every time Republicans force another government shutdown.
It’s also a way for Republicans to throttle federal activities they dislike, such as IRS tax enforcement, environmental protection, and consumer protection. Keeping federal agencies on budget tenterhooks is mainly a Republican thing.
But Alito’s and Gorsuch’s description of CFPB’s funding mechanism as “novel” isn’t unique or novel at all on the state level, where many government agencies are self-funded with fees, user charges, fines and penalties, and such. These agencies including horse racing commissions, gambling commissions, fish and game departments, and many others.
CFPB’s Supreme Court win is a big deal for average Americans, because it preserves an umbrella of protection over their financial dealings against the “filchers” always plotting, and inventing new ways, to take their money for nothing in return. Whatever our political leanings, we should be glad that agency is still there.