Written by: Nadine Chabrier
The U.S. Supreme Court recently announced it will hear a lawsuit that payday lenders filed to stop a regulation from the Consumer Financial Protection Bureau (CFPB), a government watchdog established after the 2008 Financial Crisis. In challenging the regulation, payday lenders – which typically charge interest rates around 400 percent – are advancing an argument that urges the Supreme Court to open Pandora’s box. What is unleashed would threaten the stable operation of our federal government as well as the services it provides and the economy it undergirds. All this just so these lenders can keep bleeding borrowers dry.
Payday lenders successfully argued to the Fifth Circuit Court of Appeals that because funding for the CFPB is outside of Congress’ annual appropriations process, it is unconstitutional – even though Congress’ practice of funding agencies this way dates back centuries and has been repeatedly upheld by the courts. But they didn’t stop there. Payday lenders persuaded this court that unconstitutional funds used in support of the agency’s actions made the underlying actions illegal.
The Fifth Circuit’s decision runs contrary to the history and text of the Constitution and judicial precedent. It has been rejected by every other court to consider the argument, including the appellate courts for the D.C. Circuit and for the Second Circuit. Moreover, the Fifth Circuit’s decision puts the pillars of our economy at risk.
The danger of the payday lenders’ argument is seen vividly if applied to the Federal Reserve, a.k.a. “the most powerful economic institution in the United States.” Not only is the Fed tasked with maintaining stable prices and achieving full employment through monetary policy, but it also regulates banks and operates our payment systems. Congress provided a perpetual authorization for the Federal Reserve Board to fund itself by determining its own budget and setting assessments on the private regional Federal Reserve Banks. This levy is the same funding source that the CFPB draws upon as part of the Federal Reserve System.
If payday lenders persuade the Supreme Court, then not only could the CFPB fall, but so could the Federal Reserve and numerous government agencies. Why? Because the CFPB cannot be distinguished from the Federal Reserve Board, Federal Deposit Insurance Corporation, or any other agency that falls outside the annual appropriations process. The Bureau has no special powers that differentiate it from other financial regulators. Nor is the CPFB more insulated from accountability to Congress than these other regulators. So, striking down the funding structure of the CFPB, but leaving the other regulators immune from a similar attack, would require extreme legal gymnastics that are logically untenable.
The stakes are high for Americans of all stripes. People regularly interact with federal agencies that receive funding from outside the annual congressional appropriations process. This includes: a senior citizen who uses Medicare to cover hip replacement surgery; a rancher buying cattle with loans backed by the Farm Credit Administration; a child mailing her grandfather a birthday card; a widow receiving a monthly Social Security check; and a military servicemember getting reimbursed after the CFPB proves a lender overcharged them. All of these government services, and many more, are imperiled by this lawsuit.
In launching this lawsuit, payday lenders showed they have one agenda: to continue trapping consumers in endless cycles of debt. Their self-serving and short-sighted goal is to obliterate their supervising agency, without concern for the chaos and hardship their misguided legal campaign could inflict on our country.
But, just because payday lenders are willing to open Pandora’s box and risk it all to make more money, doesn’t mean that the Supreme Court will agree to carry out their plan. Let’s hope the Justices heed the Constitution, centuries of Congressional practice, and the ancient wisdom of the Pandora myth and decisively vote to keep the box closed.
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Nadine Chabrier is senior policy and litigation counsel at the Center for Responsible Lending, a nonpartisan, nonprofit research and policy organization working to promote financial fairness and end predatory lending. Her extensive experience in consumer finance law includes testifying before the Federal Reserve on bank mergers and litigating debt collection cases.