Obama-era watchdog agency’s independence in peril

The future of a powerful financial watchdog agency has been upended by a federal court, with both its funding and its independence now in danger. A panel of the Fifth Circuit Court of Appeals ruled last week that the Consumer Financial Protection Bureau’s (CFPB) unique power to fund its own operations is unconstitutional. “For the time being, the decision raises more questions than it answers,” wrote Ian Katz, director at research consultancy Capital Alpha Partners, in an analysis. “It will likely be appealed to the full Fifth Circuit Court of Appeals and could eventually end up before the Supreme Court,” Katz added. If the conservative-majority justices sustain the ruling, the CFPB may be unable to enforce financial rules or crack down on fraud without Congress stepping in to fund it. But that would also give Republican lawmakers, who’ve long griped about the agency, a chance to undermine in for good.

“As Republicans have said all along, the CFPB’s ‘double-insulated,’ independent funding mechanism is unconstitutional and makes it wholly unaccountable,” Rep. Patrick McHenry (N.C.), the top Republican on the House Financial Services Committee, said in a statement responding to the ruling. McHenry would lead efforts to revamp the CFPB if the GOP takes control of the House in the upcoming midterm elections. “Bringing the CFPB under the appropriations process would make it more accountable to the American people through their elected representatives,” he added. The CFPB has been a partisan flashpoint since it was created in 2011 by the Dodd-Frank Wall Street reform law as part of the response to the Great Recession. The brainchild of Sen. Elizabeth Warren (D-Mass.), the CFPB was granted unprecedented power and independence to enforce laws meant to protect Americans from fraud and abuse from the financial sector. Over its 11 years in operation, the CFPB has issued sweeping new rules and reeled in more than $10 billion in fines paid by firms that allegedly abused, deceived, or discriminated against customers. Republicans have taken several steps to tame the CFPB from within since its creation. Former President Trump overrode the agency’s line of succession in 2017 by appointing then-White House budget director Mick Mulvaney to serve as its acting chief.