(Reuters) – Just about half of the state attorneys general in the U.S. believe the Consumer Financial Protection Bureau is an indispensable partner, setting nationwide consumer protection policies that augment the efforts of state regulators.
The other half? They say the CFPB is imperious and unaccountable, encroaching on AGs’ regulatory turf and shifting priorities with every change of presidential administration.
These entirely divergent perspectives on whether the CFPB helps or hinders state AGs come from dueling friend-of-the-court briefs filed at the U.S. Supreme Court, which is slated to decide next year whether the bureau’s funding structure violates the Appropriations Clause of the U.S. Constitution.
The state AGs are split not just on the constitutionality of the CFPB’s funding structure but also — and perhaps more importantly — on the regulatory ramifications if the Supreme Court decides that Congress erred in the 2010 Dodd-Frank Act by shielding the new agency from the annual budget appropriations process. The CFPB instead receives annual funding directly from the Federal Reserve, based on a request by its director and subject only to a statutory cap of about $600 million. (That figure is in 2009 dollars. Congress allowed for the cap to be adjusted to reflect inflation.)
New York and 22 other states, along with the District of Columbia, sided in their May 15 brief with the CFPB and its lawyers at the U.S. Justice Department, who contend that Congress acted within constitutional bounds. The CFPB’s funding structure, they argue, comports with the text of the Appropriations Clause, which merely requires Congress to authorize federal spending but does not dictate how appropriations must be structured. The CFPB’s funding also aligns with historical practices, the DOJ said, since Congressional appropriation statutes have often allowed broad leeway to the executive branch.
Of all the courts that have opined on the CFPB’s funding structure, the bureau’s backers argued, only the 5th U.S. Circuit Court of Appeals has discerned a constitutional defect, in the 2022 opinion that’s now under Supreme Court review.
On the other side of the AG split are West Virginia and 26 other states that insist the 5th Circuit was right. Like the two payday lender trade groups that challenged the CFPB’s funding at the 5th Circuit, West Virginia and its allied states argue that the CFPB’s funding structure breaches the Constitution because it improperly insulates the bureau from political accountability. That accountability, they contend, is a bulwark of separation of powers doctrine.
West Virginia and its co-signers also told the Supreme Court, in a separate motion filed on Monday, that the state AGs’ perspective is so important that the court should allocate part of the trade groups’ time at oral argument to the AGs.
“The states bring special expertise in the consumer protection field that respondents, as regulated parties, do not share,” the brief said. The AGs also said they have a special stake in the interpretation of the Dodd-Frank Act because Congress “took special care to preserve state authority over areas that might otherwise fall under the CFPB’s jurisdiction.”
West Virginia’s brief acknowledged that the trade groups challenging the CFPB’s funding do not want to give up any of their oral argument time to the AG amici. (The DOJ did not respond to the AGs’ request, according to the brief.) The trade groups’ counsel, Noel Francisco of Jones Day, did not respond to my email query on the AGs’ motion. A spokesperson for West Virginia AG Patrick Morrisey also did not respond to a query on the motion for oral argument. A Justice Department spokesperson declined to comment.
New York’s Letitia James and the other state AGs who support the CFPB dedicated most of their brief backing the CFPB to arguments that the Supreme Court should not erase the bureau’s otherwise valid rules and regulations even if it finds the CFPB’s funding structure unconstitutional. The alleged harm from that purported constitutional defect, they said, is “meager” and “indeterminate.” By contrast, the New York brief said, the CFPB’s regulations and investigations benefit everyday consumers.
“Losing the CFPB’s continued contributions would seriously impair the states’ efforts to combat fraud and abuse in the consumer financial market,” the New York brief said.
West Virginia’s brief specifically refuted the New York group, arguing that the other AGs have things backward: The states don’t need the CFPB to protect consumers, the brief said, but they do have a deep interest in accountability for federal agencies whose mandates overlap with theirs.
“There’s nothing ‘meager’ or ‘indeterminate’ about the harms that flow from skipping the appropriations process,” the West Virginia brief said. “Just as the Constitution intended, that process serves as a vital avenue of influence by giving states insight into agency action and a meaningful way to respond to it.”
The Supreme Court should send a message to Congress, the West Virginia brief said, by erasing the CFPB’s challenged payday lending regulations — and leaving it to state AGs to fill any resulting gaps in enforcement.
I should note that the state AGs are hardly the only amici on either side. The CFPB attracted a total of 14 amicus briefs from groups including the Mortgage Bankers Association, which is worried about a decision that could cast the entire mortgage industry into chaos, and AARP, which lauded the CFPB for rulemaking and enforcement actions that protect seniors from financial abuses.
The payday lending trade groups drew 16 amicus briefs, among them a filing from the U.S. Chamber of Commerce, the American Bankers Association and other major business-friendly groups. (They argued that the CFPB’s funding structure is unconstitutional but suggested that the Supreme Court issue a decision that gives Congress time to fix the problem without disrupting regulatory expectations.) Hundreds of current and former members of Congress, like the state AGs, split between the two sides.
The CFPB has always been a political lightning rod, as you can see from a Supreme Court brief filed by Mick Mulvaney, who was an acting CFPB director during Donald Trump’s presidency but said the agency was “one of the most opaque, least transparent and potentially most abusive agencies in the federal government.”
The AGs’ contradictory amicus briefs are yet more evidence of that polarization.
Read more:
U.S. Supreme Court to hear fight over consumer watchdog agency’s funding
Consumer agency asks U.S. Supreme Court to review case that invalidated its funding
U.S. consumer protection watchdog’s funding unconstitutional, court rules
Reporting By Alison Frankel; editing by Leigh Jones
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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