Consumer Financial Protection Bureau

Financial regulation in the United States

Dodd-Frank Act

Federal Reserve

Financial regulation by state

Key terms

Commercial bank • Credit union • Depository institution • Financial system • Investment banking • Securities

Hover over the above terms for definitions.

The Consumer Financial Protection Bureau (CFPB) is an independent agency created in 2010. It is responsible for consumer protection in the financial industry. The bureau's consumer protection activities include writing and enforcing regulations for banks and other financial institutions, providing financial information to consumers, monitoring markets, tracking consumer complaints, and preventing fraud.

Background[edit]

Dodd-Frank Wall Street Reform and Consumer Protection Act[edit]

Adopted in 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act (more commonly known as the Dodd-Frank Act) was intended "to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end 'too big to fail,' to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes." According to the United States House of Representatives Financial Services Committee, the Dodd-Frank Act created 400 new financial regulations. Additionally, the sixteen-title act created four new federal agencies: the Consumer Financial Protection Bureau (CFPB), the Office of Financial Research (OFR), the Federal Insurance Office (FIO), and the Financial Stability Oversight Council (FSOC). Supporters of the act argued that such regulation is necessary for financial markets in order to protect consumers and minimize risk to the broader economy. Opponents, however, argued that the rules in the act would not mitigate financial risk and have challenged the constitutionality of the act.^[3][4][5]

Authority[edit]

The CFPB serves as the regulatory body responsible for consumer protection in the financial sector. The CFPB may take action against institutions that employ predatory practices, discriminate, or commit fraud, among other practices. The CFPB can write and enforce regulations for financial institutions with assets exceeding $10 billion, as well as their affiliates. Smaller institutions are regulated by state-level agencies. Lists of institutions regulated by the CFPB by year are available here.^[6]

Organization[edit]

Structure[edit]

The CFPB is an independent agency; as such, it reports and is subordinate to the President of the United States. The CFPB consolidates members from other federal agencies, such as the Federal Reserve, the Federal Deposit Insurance Corporation, and the National Credit Union Administration. The CFPB is funded by the Federal Reserve. The CFPB's funding is determined by a fixed formula dependent on the Federal Reserve's operating expenses. Since fiscal year 2014, the agency's budget has been 12 percent of the Federal Reserve's operating expenses, with annual adjustments for inflation. In fiscal year 2023, the agency's budget was $696.6 million.^[7][8]

Director[edit]

The CFPB is headed by a director, who is appointed by the president and confirmed by the United States Senate.

Richard Cordray[edit]

The first director of the CFPB was Richard Cordray, appointed on January 4, 2012, by President Barack Obama. There was some controversy surrounding the appointment, as it was made at a time when Congress was not in session but not formally in recess (the United States Constitution grants the president the authority to make appointments when the United States Congress is formally in recess). Obama renominated Cordray on January 24, 2013, and Corday was confirmed by the United States Senate on July 16, 2013. On June 26, 2014, the United States Supreme Court ruled unanimously that the 2012 appointment of Cordray violated the United States Constitution. On November 1, 2017, Cordray announced plans to step down.^{[9][10][11][12][13][14]}

Mick Mulvaney (acting)[edit]

On November 24, 2017, Cordray resigned as the bureau's director. President Trump said he was appointing Mick Mulvaney, the director of the U.S. Office of Management and Budget (OMB), as acting director. However, Cordray stated, “Upon my departure, Leandra English will become the acting Director pursuant to section 1011(b)(5) of the Dodd-Frank Act.”^{[15][16][17][18]}

On November 26, 2017, English filed a lawsuit in the U.S. District Court for D.C. to stop the president from appointing Mulvaney as acting director. English dropped the lawsuit and resigned from the CFPB on July 6, 2018, one month after President Trump nominated Kathy Kraninger to serve as the agency's director.^[19][20][21]

Kathy Kraninger[edit]

President Trump nominated Office of Management and Budget (OMB) official Kathy Kraninger to serve as the CFPB director in June 2018. She previously worked for OMB, the United States Senate, and the U.S. Department of Homeland Security. At the time of her nomination, Kraninger’s supporters argued that her leadership experience and public service background qualified her to lead the agency. Her critics claimed that she lacked the consumer protection and banking experience necessary to head the CFPB.^[1][22]

The United States Senate voted 50-49 on December 6 to confirm Kraninger. Kraninger replaced Mick Mulvaney, who had led the CFPB in an interim capacity since November 2017.^[1]

Dave Uejio (Acting)[edit]

Uejio served as Acting Director from January 20, 2021 until Rohit Chopra assumed the role.^[23]

Rohit Chopra[edit]

President Biden nominated Chopra, who was confirmed by a United States Senate in a 50–48 vote. on September 30, 2021.^[24]

Constitutional challenges to CFPB[edit]

SCOTUS upholds Consumer Financial Protection Bureau funding structure (2024)[edit]

The U.S. Supreme Court on May 16, 2024, held 7-2 in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited that Congress statutorily authorizes the CFPB to draw money directly from the Federal Reserve System. The court ruled that the CFPB’s funding structure therefore does not violate the appropriations clause of the U.S. Constitution.

Industry groups had sued the CFPB after the bureau issued a rule aiming to enforce disciplinary action against certain payday lenders. A three-judge panel of the United States Court of Appeals for the Fifth Circuit rejected the challenge to the rule but held that the CFPB’s funding structure, which flows from the Federal Reserve rather than through explicit congressional appropriations, violates the appropriations clause.

The Supreme Court found that the CFPB’s funding structure satisfies the definition of a congressional appropriation. “The Bureau’s funding statute contains the requisite features of a congressional appropriation,” wrote Justice Clarence Thomas in the majority opinion. “The statute authorizes the Bureau to draw public funds from a particular source … And, it specifies the objects for which the Bureau can use those funds—to 'pay the expenses of the Bureau in carrying out its duties and responsibilities.'”

Justice Samuel Alito authored a dissenting opinion, joined by Justice Neil Gorsuch, arguing “that the Appropriations Clause demands legislative control over the source and disposition of the money used to finance Government operations and projects,” and that the CFPB’s funding mechanism through the Federal Reserve limits congressional oversight of the bureau’s policies.^[25]

Second Circuit weighs in on CFPB funding structure (2023)[edit]

The United States Court of Appeals for the Second Circuit ruled in Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, P.C. on March 23, 2023, that the funding structure of the Consumer Financial Protection Bureau (CFPB) is constitutional and does not violate the Constitution’s appropriations clause. The ruling departs from a 2022 holding by the Fifth Circuit that is pending before the U.S. Supreme Court.^[26]

After the United States District Court for the Southern District of New York ruled in August 2020 in favor of the CFPB’s civil investigative demand against the Law Offices of Crystal Moroney, the law office appealed on the grounds that the agency’s petition was unenforceable in part because the CFPB’s funding structure (which flows through executive branch disbursements from the U.S. Treasury rather than through congressional appropriations) violates the appropriations clause of the U.S. Constitution. The Second Circuit, however, upheld the agency’s funding structure, arguing that Congress approved the funding mechanism when it passed the Consumer Financial Protection Act.^[26]

The United States Court of Appeals for the Fifth Circuit, however, ruled in 2022 in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited that the CFPB’s funding structure violates the appropriations clause, which vests Congress—not the executive branch—with control over fiscal matters. CFPB appealed the decision and the case is scheduled to be heard by SCOTUS during the court’s October 2023-2024 term. The upcoming SCOTUS decision could overturn the Second Circuit ruling.^[26]

SCOTUS rules CFPB structure unconstitutional, saves agency (2020)[edit]

The court ruled 5-4 in Seila Law v. Consumer Financial Protection Bureau that Congress violated the U.S. Constitution when it created the CFPB, which exercised executive powers and had a director who was protected from at-will termination by the president. The majority held that such restrictions on the president's ability to remove agency leaders violate separation of powers principles. The court held that it could sever the constitutionally-suspect parts of the Dodd-Frank Act that set up the CFPB and leave the rest of the agency's structure and powers intact.^[27]

Case claims CFPB violates nondelegation doctrine (2019)[edit]

The New Civil Liberties Alliance (NCLA), a pro bono law firm with a focus on the administrative state, on December 19 filed a lawsuit in the United States District Court for the Southern District of New York challenging the constitutionality of the Consumer Financial Protection Bureau (CFPB) on the grounds that Congress unlawfully delegated appropriations power to the agency in violation of the nondelegation doctrine.^[28]

The case, Law Offices of Crystal Moroney v. Bureau of Consumer Financial Protection, alleges that Congress violated the nondelegation doctrine by granting the CFPB the authority to draw funding directly from the Federal Reserve. This grant of authority, according to NCLA, allows the agency to unilaterally exercise appropriations power and evade oversight from congressional appropriations committees.^[28]

SCOTUS to determine constitutionality of CFPB single director (2019)[edit]

The United States Supreme Court on October 18, 2019, granted certiorari in Seila Law v. Consumer Financial Protection Bureau—a case challenging the constitutionality of the bureau's structure.^[29]

The Trump administration on September 17 filed a brief in the case asserting that the CFPB structure violates the separation of powers because it prevents the president from unilaterally firing the agency’s single director.^[30]

Federal district judge finds CFPB single director unconstitutional (2018)[edit]

On June 21, 2018, Judge Loretta Preska of the United States District Court for the Southern District of New York ruled in Consumer Financial Protection Bureau et al v. RD Legal Funding LLC et al that the structure of the CFPB was unconstitutional. Preska ruled that, as an independent federal agency, the CFPB could not be headed by a director who could only be dismissed for wrongdoing.^[31]

Former New York Attorney General Eric Schneiderman (D) and the CFPB filed the lawsuit against RD Legal Funding LLC and related entities in February 2017. The lawsuit, Consumer Financial Protection Bureau et al v. RD Legal Funding LLC et al, claims that RD Legal scammed both NFL concussion victims and 9/11 heroes out of money for medical services and related expenses. Preska dismissed the CFPB from the case but allowed New York Attorney General Barbara Underwood (D) to continue with the lawsuit.^[31][32]

Preska determined that the CFPB “is unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single Director,” according to the The Hill. She added that the section of the Dodd-Frank Act that established the CFPB should be stricken, but did not order that the agency be shut down.^[31]

The CFPB appealed the decision to the United States Court of Appeals for the 2nd Circuit on September 14, 2018.^[33]

D.C. Circuit rules CFPB single director constitutional (2018)[edit]

See also: Independent federal agency

On October 11, 2016, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit ruled 2-1 that the organizational structure of the CFPB was unconstitutional. The court found that the bureau, being subject to the authority of a single director, was not in line with other independent federal agencies, which are generally led by groups of commissioners. Further, the CFPB's director could only be removed from office with cause, a limitation deemed unconstitutional by the appeals court. The court did not shut down the CFPB, but ordered that the agency must be restructured to allow the president to remove the bureau's director at will. According to Judge Brett Kavanaugh, the prior method of removal, which required cause, lacked checks and balances, as the agency could effectively operate with full authority with no checks on its actions.^[34][35]

On January 31, 2018, the United States Court of Appeals for the District of Columbia Circuit ruled 7-3 that the structure of the CFPB as an independent federal agency was constitutional, reversing the October 2016 decision.^[35]

See also[edit]

• Financial Stability Oversight Council
• Office of Financial Research
• Federal Insurance Office

External links[edit]

• Consumer Financial Protection Bureau
• Institutions subject to CFPB supervisory authority

Footnotes[edit]

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Dresch (2000) "Confronting the Administrative Threat" by Philip Hamburger and Tony Mills (2017) "Constitutionalism after the New Deal" by Cass R. Sunstein (1987) Federalist No. 23 by Alexander Hamilton (1787) "From Administrative State to Constitutional Government" by Joseph Postell (2012) "Interring the Nondelegation Doctrine" by Eric A. Posner and Adrian Vermeule (2002) "Rulemaking as Legislating" by Kathryn Watts (2015) "The Checks & Balances of the Regulatory State" by Paul R. Verkuil (2016) "The Myth of the Nondelegation Doctrine" by Keith E. Whittington and Jason Iuliano (2017) "The Progressive Origins of the Administrative State: Wilson, Goodnow, and Landis" by Ronald J. Pestritto (2007) "The Rise and Rise of the Administrative State" by Gary Lawson (1994) "The Study of Administration" by Woodrow Wilson (1887) "The Threat to Liberty" by Steven F. Hayward (2017) "Why the Modern Administrative State Is Inconsistent with the Rule of Law" by Richard A. Epstein (2008) Agencies Administrative Conference of the United States • United States Civil Service Commission • U.S. Government Accountability Office • U.S. Office of Information and Regulatory Affairs • U.S. Office of Management and Budget