At Hearing, Warren Calls out Fifth Circuit's Dangerous Ruling Against the CFPB, Which Jeopardizes Major Financial Regulators and Stability of Financial System

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At a hearing of the Senate Banking, Housing, and Urban Affairs Committee, U.S. Senator Elizabeth Warren (D--Mass.) called out the dangerous ruling from the Republican-controlled Fifth Circuit Court of Appeals, which argued that the Consumer Protection Financial Bureau's (CFPB) funding structure is unconstitutional because it does not rely on annual appropriations from Congress.

Questioning regulators from the Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and the National Credit Union Administration, Senator Warren established that the Court's attack not only impacts the CFPB, but would also implicate the other financial regulatory agencies that also have independent funding structures. This dangerous and flawed reasoning, which stands in contrast to the U.S. Court of Appeals for the D.C. Circuit and several federal district courts upholding the CFPB's funding structure, would render some of the most consequential regulatory agencies unable to do their jobs, threatening the stability of the financial system.

Transcript: Oversight of Financial Regulators: A Strong Banking and Credit Union System for Main Street
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Tuesday, November 15, 2022

Senator Elizabeth Warren: Thank you, Mr. Chairman.

So since it was created by Congress just over ten years ago, the Consumer Financial Protection Bureau, the CFPB, has forced financial institutions to return more than $13 billion directly to people they cheated. This is government that works for the people, literally.

Now the banks really don't like losing $13 billion. They don't like being forced to shut down scams. So they, and their Republican friends, attack the CFPB. And the latest attack has come out of the Republicans' go-to court, the Fifth Circuit Court of Appeals. This court has ruled that the CFPB's funding structure is unconstitutional because it does not receive annual appropriations from Congress.

So I just want to test that out a little bit. All of you here today are from major regulators that oversee various pieces of the financial system. The OCC, the FDIC, the Federal Reserve, and the National Credit Union Administration.

So let me start with you, Acting Comptroller Hsu, is the OCC funded from the annual appropriations process?

Michael Hsu, Acting Comptroller, Office of the Comptroller of the Currency: No.

Senator Warren: Chairman Harper, does NCUA receive most of its funds from the annual appropriations process?

Todd Harper, Chair, National Credit Union Administration: No.

Senator Warren: Acting Chairman Gruenberg, is the FDIC funded from the annual appropriations process?

Martin Gruenberg, Acting Chair, Federal Deposit Insurance Corporation: (inaudible)

Senator Warren: And Vice Chair Barr, is the Fed funded from the annual appropriations process?

Michael Barr, Vice Chair for Supervision, Board of Governors of the Federal Reserve System: No.

Senator Warren: In fact, I want to focus a little bit more on the Fed. Vice Chair Barr, the Fed primarily gets its funding from earnings and assessments from the Federal Reserve Banks. Is that exactly the same source where the CFPB gets its funding?

Vice Chair Barr: Yes.

Senator Warren: So look. There is a good reason why Congress created independent funding structures for bank regulators. Your agencies are the cops on that beat that ensure the safety and stability of the banking system. Your rules provide the guidebook for financial institutions to serve consumers while acting within the law. Congress understood this, even back in 1863 with the very first banking regulator, that if the ability of our regulators to do their jobs fluctuated every time Congress negotiated a spending bill, or every time Congress changed hands, that the financial markets would be thrown into chaos.

Vice Chair Barr, your job is to make policy, not worry about the Fed's budget. But let me ask. Does the Fed's independent funding structure help provide certainty and stability to banks and financial markets because no one in the system has to worry about the Fed's ability to do its job, or to have the resources to enforce the rules?

Vice Chair Barr: Yes, I believe that kind of certainty is quite important to doing our job effectively.

Senator Warren: Well unfortunately, the Fifth Circuit's argument implies that because all of you are, and always have been, funded outside the appropriations process, that all of your agencies are unconstitutional. This would mean that none of you can do any of the things you are doing, from setting interest rates at the Fed, to making sure that when people make deposits in their banks that they are protected by FDIC insurance.

And it's not just your agencies. Numerous other government entities are also funded outside the appropriations process, including the Federal Housing Finance Agency, the Foreign Credit Administration, and the Financial Stability Oversight Council. By the Fifth Circuit's logic, they would also be unconstitutional.

Not only does that make no sense--it's also not what the Constitution says. The Constitution says, and I'll quote it here, "no money shall be drawn from the Treasury, but in consequence of appropriations made by law." And no money is withdrawn from the Treasury to fund any of our financial regulators.

As Professor Noah Feldman notes, the Supreme Court has repeatedly, and reasonably said that this clause "means simply that no money can be paid out of the Treasury unless it has been appropriated by an act of Congress." For this reason, the U.S. Court of Appeals for the D.C. Circuit and a slew of district courts have all upheld the CFPB's funding structure.

Even though this decision out of the Fifth Circuit is not grounded in law, it could have real consequences for the stability of our financial system. The Mortgage Bankers Association understands that risk. In 2019, they warned that if the CFPB were struck down, quote, "the results could be catastrophic for the real estate finance industry.

The Trump court ruling is not only shockingly dumb, it's also dangerous. That's what happens when courts play politics instead of following the law.

Thank you, Mr. Chairman.

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