Just when they thought they were home free — Consumer Financial Protection Bureau Director Rohit Chopra will face Congress this week as the head of a newly emboldened bureau: The CFPB is vastly expanding its enforcement staff and gearing up to take on bank fees, credit reporting and open banking after the Supreme Court upheld its funding. But Republicans aren’t giving up the fight against an agency they have been trying to eviscerate since its inception – including by throwing up yet another challenge to the validity of the agency’s funding. Under the 2010 Dodd-Frank law that created the bureau, the CFPB is supposed to draw its budget from the Federal Reserve’s “earnings,” a mechanism put in place by Democrats to insulate the agency from political pressure. Yet critics, including retired Harvard Law School professor Hal Scott, argue that the Fed — which stopped transferring money to the Treasury in September 2022 — doesn't have earnings right now. “The novel funding mechanism remains an important legal question,” Rep. Andy Barr said in an interview. “And the fact that the Federal Reserve has been operating at a loss for several years raises the important statutory and constitutional question of whether, at least since then, the CFPB has been funded in accordance with the law.” Barr, a member of the House Financial Services Committee who is running to be its next chair, said he expects lawmakers to bring up the funding issue when Chopra appears before the panel on Thursday, a day after he testifies before Senate Banking. Barr has introduced a bill to place the bureau under congressional appropriations. The argument is a serious one, according to Alan Kaplinsky, former chair of the consumer financial services group at Ballard Spahr: “I think it has a lot of merit — I’m absolutely convinced, and I wish I had thought of the idea,” he said. “I’m quite sure it will get raised at some point in court.” Kaplinsky said the argument stands a better chance of succeeding than the one that the Supreme Court rejected last month when it protected the CFPB’s funding mechanism. In that case, payday lenders had charged that the bureau’s funding is unconstitutional because it is not subject to congressional appropriations. “Unlike the other funding argument, which required a lot of constitutional research…this argument relies on one word, and that is, what are ‘earnings’ of the Federal Reserve system?” Kaplinsky said. “And the plain meaning of the word ‘earnings,’ if you look it up in any dictionary, it’s your revenue less your expenses.” Not so fast, says Jeff Sovern, a consumer law professor at the University of Maryland school of law, who argues that earnings could also mean total income, not net profits. “When we’re speaking of individuals, we say their earnings are X, and X is their salary — we don’t deduct for expenses of getting to their job,” Sovern said. What’s more, the Dodd-Frank law does not stipulate that the earnings have to come from the same year in which the consumer bureau is paid, he said: “Since they speak about the specific fiscal year when they’re talking about the cap on what the bureau can get, it’s clear that they could have referred to that specific year in the first clause of the statute, but they chose not to.” Still, it’s another challenge to the bureau that could work its way through the courts. “Is life now a bed of roses for the CFPB — have they survived the last challenge? I don’t think so,” said Bryan Schneider, former associate director for supervision, enforcement and fair lending at the bureau. “There will remain significant challenges to potentially everything they do.”
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