Yahoo Finance Warren 'takes heart' from Supreme Court skepticism of CFPB funding challenge
Senator Elizabeth Warren (D-Mass.) said Wednesday that Supreme Court justices "seem to understand" that if funding of the Consumer Financial Protection Bureau is deemed unconstitutional, it could upend the US economy.
"Yesterday at least gave me heart that the justices seem to understand that if they knock down the CFPB over its funding, they got a real problem with everything else in the financial system," Warren told Yahoo Finance Live in an exclusive interview (video above).
The Supreme Court heard oral arguments Tuesday in a challenge brought by payday lenders to the funding structure of the CFPB, which Warren created in the aftermath of the 2008 financial crisis.
Those lenders have argued that the financial watchdog’s funding through the Federal Reserve is unconstitutional and that funding should be appropriated by Congress.
“The problem with that argument is that's the case for every single banking regulator. It's true for the CFPB, but also for the Federal Reserve,” she said.
The justices appear likely to uphold the CFPB’s current funding structure based on what transpired Tuesday.
The justices sounded skeptical of the arguments made by the payday lenders, making the points that Congress often has funded agencies similar to how it funded the CFPB; that the legislature always has the right to revoke the spending authorization; and that the limit on the CFPB's budget means it is restricted in how much it can spend.
Conservative Justice Brett Kavanaugh, for example, said lawmakers could still pass a bill changing how the agency is funded, saying during Tuesday’s argument that "Congress could change it tomorrow."
Warren is the architect of the CFPB, which was created following the 2008 financial crisis to crack down on predatory lending and protect consumers. She has long been concerned that Republicans would try to starve its budget, preventing the agency from doing its job.
The agency is funded much like the FDIC, Office of the Comptroller of the Currency (OCC), and the Federal Reserve to help preserve the agency’s independence and enable it to act quickly during a financial crisis.
Rather than being funded through Congressional annual appropriations, the agency is given a capped amount, adjusted for inflation, from the Federal Reserve, which receives earnings from interest earned on its government securities.
Warren underscored that if the Supreme Court found the financial watchdog’s funding unconstitutional, it could upend other government-led agencies and systems that serve consumers. That includes Social Security and Medicare, both of which are not funded by Congress.
It could also raise questions about funding for other banking agencies like the Fed, OCC, and FDIC, creating concerns about their independence.
"So if the Supreme Court decided that the CFPB can't do this, they could upend not only people's lives but also our entire economy," Warren said. "So I hope that makes the court more cautious and leaves the CFPB intact so it can keep doing its good work on behalf of the American people."
One of the reasons the CFPB was erected during the aftermath of the financial crisis was to create a set of rules around mortgage lending such that borrowers wouldn’t be duped and lenders wouldn’t package poor-quality loans to divvy up and sell as investments throughout the financial markets.
Warren argues if the CFPB got its funding structure nullified it would "touch the lives of everybody in this country."
"Anybody trying to buy a house, anybody trying to sell a house could find out that there's no longer a set of rules that apply," she said. "That means people can get cheated. It means you can't have a financing system that works and everybody knows that it works according to the rules."
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