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Appeals court rules structure of Obama-era Consumer Financial Protection Bureau unconstitutional

The agency is expected ask for a stay while it seeks an appeal to the entire 5th Circuit Court, then the Supreme Court.

Published: October 21, 2022 8:03am

Updated: October 21, 2022 8:11am

A federal appeals court has ruled that the funding structure for the Obama-era Consumer Financial Protection Bureau is unconstitutional.

The ruling was made Thursday in a case brought by a group of so-called payday lenders.

A three-judge panel for the 5th U.S. Circuit Court of Appeals in the case threw out a regulation by the financial watchdog agency governing such high-interest-rate lenders. The panel also ruled that the way the federal bureau is funded "violates the Constitution's structural separation of powers."

The bureau was created by the Obama administration and Congress following the financial crisis and 2007-09 Great Recession to try to better protect Americans when dealing with banks, student loan, credit card companies and other financial firms, according to National Public Radio.  

Congress approved the bureau’s funding. But the CFPB, in an attempt to protect it from political influence, receives its funding from the Federal Reserve, which the court said violates the Constitution.

"While the great majority of executive agencies rely on annual appropriations for funding, the Bureau does not," the judges wrote. "Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it."

Chris Peterson, a law professor at the University of Utah and former enforcement attorney at the CFPB, told NPR that the Federal Reserve and the Federal Deposit Insurance Corporation also do not receive their funding from Congress and that the CFPB  is likely to ask for a stay while it seeks an appeal to the entire 5th Circuit Court, then the Supreme Court.

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