Did the Supreme Court Hand the CFPB a Pyrrhic Victory?

Consumer Finance Monitor

Special guest Professor Hal Scott of Harvard Law School joins us today as we delve into the thought-provoking question of whether the Supreme Court’s recent decision in the landmark case of CFSA v. CFPB really hands the CFPB a winning outcome, or does the Court’s validation of the agency’s statutory funding structure simply open up another question: whether the CFPB is legally permitted to receive funds from the Federal Reserve if (as now) the Fed has no earnings. In other words, was the outcome in CFSA v. CFPB an illusory Pyrrhic victory for the CFPB? And, what happens next?

Our episode begins with a brief discussion of the underlying case. Professor Scott follows with an explanation of the CFPB’s statutory funding mechanism as established by the Dodd-Frank Act, which provides that the CFPB is to receive its funding out of the Federal Reserve System’s “earnings”, and the Supreme Court’s decision upholding that structure.

Then, we turn to an in-depth discussion of the op-ed Professor Scott published in the Wall Street Journal entitled “The CFPB's Pyrrhic Victory in the Supreme Court”, in which Professor Scott explains that even though the CFPB's funding mechanism as written was upheld in CFSA v. CFPB, this will not help the agency now or at any time in the future when the Federal Reserve operates at a deficit – in fact, has no earnings it can legally send to the CFPB. Professor Scott describes how his focus on the Federal Reserve led him to scrutinize and then question the approach taken in the majority opinion; and then turns to an explanation of how a constitutional issue under the Appropriations Clause in fact may persist because in the absence of Fed earnings, funds paid to the CFPB arguably have not been drawn from the Treasury. We then go over possible arguments challenging the CFPB’s issuance and enforcement of regulations, and what might ensue when the federal district court takes up CFSA v. CFPB for further proceedings.

Alan Kaplinsky, former practice leader and current Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, hosts this week’s episode.