The Consumer Financial Protection Bureau is facing additional challenges that call into question the legality of the bureau’s funding.
The Supreme Court upheld the CFPB’s funding mechanism in May. In several recent lawsuits, companies sued by the CFPB for violations argue that the bureau is using funds it should not have. The Dodd-Frank Act requires that the CFPB is funded from “the combined earnings of the Federal Reserve System.”
The Federal Reserve since September 2022 has incurred losses and no earnings, calling into question whether the CFPB should be getting any funding, according to an Aug. 16 release from law firm Ballard Sphar.
“That argument is being made in multiple places,” Marci Kawski, partner at law firm Husch Blackwell, told Bank Automation News’ sister publication Auto Finance News. “It’s another potential challenge to [the CFPB’s] funding. … There are some companies that are frustrated with the CFPB and continue to seek ways to try to mitigate their authority.”
The Federal Reserve as of Dec. 31, 2023, reported $133.3 billion in deferred assets, up from $16.6 billion at yearend 2022 and $0 at yearend 2021, according to the Fed’s annual reports. Deferred assets occur when Federal Reserve banks’ earnings are not sufficient to provide excess earnings to the U. S. Treasury.
On Aug. 15, fintech company SoLo Funds, which provides consumers with small, short-term loans, filed a motion to dismiss a CFPB complaint against the lender on the basis that the bureau used unconstitutional funds from the Fed, according to Ballard Sphar. The CFPB alleges that SoLo engaged in deceptive advertising and disclosures and collected amounts from consumers that were not owed.
The SoLo case is one of several lawsuits attempting to dismiss CFPB claims based on the bureau’s funding amid a lack of Federal Reserve profits, John Redding, partner at law firm Alston & Bird, told Auto Finance News.
“That’s a new defense we’re seeing,” he said. “The argument is that the CFPB funding has to come from essentially profit at the Treasury. It’s being raised in lawsuits and is the next big fight [against CFPB funding].”
Editor’s note: This article first appeared on Auto Finance News, a sister publication to Bank Automation News.
