Fifth Circuit declares CFPB unconstitutional


Three judges appointed by former President Donald Trump handed down an astonishing decision on Wednesday, effectively holding that the Consumer Financial Protection Bureau, the federal agency charged with protecting consumers from a wide range of predatory activity by lenders and other financial services, is unconstitutional and must be stripped of its authority.

The decision by the conservative United States Court of Appeals for the Fifth Circuit relies on a novel reading of an obscure provision of the Constitution, and is entirely at odds with a Supreme Court decision that rejects the Fifth Circuit’s reading of that provision. This is not unusual behavior from the Fifth Circuit, which often reads the Constitution in novel and unexpected ways that benefit political conservatives and the Republican Party.

Indeed, Judge Cory Wilson admits in the court’s new opinion in Community Financial Services v. CFPB that “every court to consider” the arguments presented in this case has deemed the CFPB to be “constitutionally sound.”

Should the three Trump judges’ decision stand, it would effectively neutralize much of the federal government’s ability to fight financial fraud — although that outcome probably is not likely given that the Fifth Circuit’s decision is such an outlier. As Wilson explains, the CFPB assumed enforcement authority “over 18 federal statutes” when it was formed nearly a dozen years ago, and these statutes “cover everything from credit cards and car payments to mortgages and student loans.”

Meanwhile, the agency also enforces a “sweeping new proscription on ‘any unfair, deceptive, or abusive act or practice’ by certain participants in the consumer-finance industry.” All of these consumer protections could evaporate if the Fifth Circuit’s decision earns the favor of the Supreme Court.

The CFPB is constitutional

The judges’ decision in Community Financial Services v. CFPB , turns on the somewhat unusual way the CFPB is financed.

Most federal agencies receive an annual appropriation from Congress that may be altered each year during legislative negotiations over federal spending. Many agencies, however, have separate funding sources, such as the ability to collect fees or assessments from the entities they regulate, and do not rely on the annual appropriations process to fund their operations.