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The CFPB is Unconstitutional says the 5th Circuit
This is a quick reaction piece to breaking news out of the 5th Circuit
Exciting news out of the 5th Circuit today, as a panel found that the CFPB’s funding structure was unconstitutional and therefore it could not promulgate the payday lending rule.
In it’s decision the court held that while the CFPB had sufficient statutory authority to issue the rule, and the unconstitutional nature of its director wasn’t a problem because plaintiffs could not adequately link the unconstitutional removal provision to the rule, the CFPB’s funding structure was a problem.
The court held that because the CFPB was not funded by Congressional appropriations but by a draw from the Federal Reserve, itself not funded by appropriations, this arrangement violated the appropriations clause of the Constitution. Since the CFPB used unconstitutional money to fund the promulgation of the payday rule (and the rest of its operations) there was a direct link between the constitutional infirmity and the harm plaintiffs alleged. As such, the court held that the rule was void.
The implications of this rule are massive, since the CFPB uses unconstitutional (according to this court at least) funding for all of its actions. Everything. The works. As such, if this ruling holds it is hard to see how the CFPB will be able to do anything.
This ruling will no doubt be appealed by the CFPB, either by requesting the full Fifth Circuit to hear it or going to the Supreme Court. If it goes that far and if SCOTUS agrees with the Fifth Circuit it remains to be seen whether the Court will just declare the CFPB void or, as they did in Selia Law, the Court will effectively overwrite the law Congress passed to correct the Constitutional infirmity.
The ruling may also have implications for other agencies that aren’t funded via appropriations like the Federal Reserve and OCC. While this court distinguished the CFPB based on its double insulation and massive power that does not necessarily mean that those other agencies are in the clear.