House Financial Committee Introduces CFPB Reform Bill In Response To Recent Court Decisions

Last fall, the United States Court of Appeals for the Fifth Circuit found that the CFPB’s independent funding through the Federal Reserve was in violation of the Appropriations Clause and the underlying separation of powers principles. Community Financial Services Ass’n of America, Ltd. v. CFPB, 51 F.4th 616 (5th Circ. 2022). The Supreme Court has since granted the CFPB’s petition for certiorari and will hear the case next term.

Continuing the saga, and in a radical departure from the decision reached by the Fifth Circuit, the Second Circuit ruled on March 23, 2023 that the current funding structure of the Consumer Financial Protection Bureau (CFPB) is constitutional. CFPB v. Law Offs. of Crystal Moroney, P.C., 63 F.4th 174, (2d Cir. 2023). Specifically, the Court held that CFPB’s independent funding through the Federal Reserve System was not in violation of the Appropriations Clause or the non-delegation doctrine. The Court explained that under the non-delegation doctrine’s lenient standard, Congress had plainly provided an intelligible principle to guide the CFPB in setting and spending its budget and that the Consumer Financial Protection Act explicitly authorized the CFPB’s funding, thus it was not in violation of the Appropriations Clause.

Earlier this week, the House Financial Services Committee held a markup session in which it reviewed H.R. 2798, the CFPB Transparency and Accountability Reform Act introduced by Representative Andy Barr (R-KY) on April 24, 2023. H.R. 2798 would change the leadership structure of the CFPB from a single director to a bipartisan five-member commission. It would also bring the CFPB under the regular appropriations process and create a dedicated Inspector General. The bill would create a new Office of Economic Analysis and require cost-benefit analysis for all guidance, orders, rules or regulations of the CFPB, including an analysis of the impact proposed rules would have on small businesses. Lastly, the bill would provide awards to whistleblowers who report original information relating to a violation of consumer financial law resulting in monetary sanctions exceeding $1 million.

In his opening remarks to the markup session on April 26, 2023, Chairman Patrick McHenry (R-NC) stated that “[s]ince its inception, the CFPB has been one of the most unaccountable agencies ever created. In 2020, the Supreme Court held the removal revisions related to the executive director as unconstitutional in Seila law….and next term, the Supreme Court will examine the funding structure.” He noted that H.R. 2798 will “ensure that the CFPB is finally accountable to Congress and the American people.” In her opening remarks to the markup session, Ranking Member of the Committee, Maxine Waters (D-CA) noted her strong opposition and described H.R. 2798 as toxic and a brazen partisan attempt to undermine the CFPB because the proposed legislation “will rob the CFPB of the funding it needs to properly regulate the consumer financial marketplace” and protect American consumers.

H.R. 2798 was introduced in the House on April 24, 2023 and it was referred to the Committee on Financial Services, and in addition to the Committees on Oversight and Accountability, the Judiciary, and Small Business. A copy of the proposed legislation can be found here.