Mostly Monday Reads: The Case of Consumer Protection, Fiat money, and Other off-budget Agencies.

Good Day, Sky Dancers!

Yes, it’s another rabbit hole.  Yes, it’s rather scholarly and lawyerly. Yes, we all didn’t catch this back in February when the 5th Circuit made a decision that may impact more than just the Consumer Financial Protection Bureau.  The Bureau has been on every outrage list of right-wingers and the financial industry due to its oversight of how it snags borrowers and then proceeds to drain every last drop of money it can.  You may remember this being set up by the Obama Administration under the leadership of Elizabeth Warren before her Senate run.

The most revealing thing about the scope of the case that SCOTUS agreed to review is the weird logic of the 5th Circuit and the actual grounds of the case. This is from Scotus Blog on February 27. It’s written by Amy Howe. “Court will review constitutionality of consumer-watchdog agency’s funding.” 

The Supreme Court on Monday agreed to take up a major case involving funding for the Consumer Financial Protection Bureau, which was formed in response to the 2008 financial crisis. A federal appeals court ruled in October that the funding mechanism for the CFPB violates the Constitution, but the Biden administration, which had asked the justices to weigh in, says that allowing the lower court’s decision to stand could raise “grave concerns” for “the entire financial industry.”

The announcement came as part of a list of orders from the justices’ private conference last week.

The case involving the CFPB began as a challenge by the payday-lending industry to a 2017 rule that (as relevant here) barred lenders from making additional efforts to withdraw payments from borrowers’ bank accounts after two consecutive failed attempts due to a lack of funds.

A three-judge panel of the U.S. Court of Appeals for the 5th Circuit rejected most of the groups’ challenges to the rule, but it ultimately struck down the rule based on the CFPB’s unique funding scheme, which operates outside the normal congressional appropriations process. Instead of receiving money allocated to it each year by Congress, the CFPB receives funding directly from the Federal Reserve, which collects fees from member banks. And that scheme, the court of appeals concluded, violates the Constitution’s appropriations clause, which directs that “[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The appropriations clause, the court of appeals explained, “ensures Congress’s exclusive power over the federal purse,” which is in turn essential to ensure that other branches of government don’t overstep their authority. The court of appeals vacated the 2017 rule on the ground that the CFPB was receiving funding through that unconstitutional funding mechanism when it adopted the rule.

The CFPB came to the Supreme Court in November, asking the justices to take up the case and overrule what it characterized as the lower court’s “unprecedented and erroneous understanding of the Appropriations Clause.” The appropriations clause, the CFPB argued, means “simply that no money can be paid out of the Treasury unless it has been appropriated by an Act of Congress.” In the case of the CFPB, the government contends, “Congress enacted a statute explicitly authorizing the CFPB to use a specified amount of funds from a specified source for specified purposes. The Appropriations Clause requires nothing more.”

Let me explain why the court’s logic and the current makeup of SCOTUS worry me.  Many quasi-agencies are funded the same way the CFPB is funded.  If they let the logic of the 5th circuit stand, you would be surprised at what would likely be eliminated next.  This is from Nina Totenburg’s All Things Considered on February 27.

The Supreme Court agreed on Monday to take up a case that could threaten the existence of the Consumer Financial Protection Bureau and potentially the status of numerous other federal agencies, including the Federal Reserve.

A panel of three Trump appointees on the Fifth Circuit Court of Appeals ruled last fall that the agency’s funding is unconstitutional because the CFPB gets its money from the Federal Reserve, which in turn is funded by bank fees.

Although the agency reports regularly to Congress and is routinely audited, the Fifth Circuit ruled that is not enough. The CFPB’s money has to be appropriated annually by Congress or the agency, or else everything it does is unconstitutional, the lower courts said.

The CFPB is not the only agency funded this way. The Federal Reserve itself is funded not by Congress but by banking fees. The U.S. Postal Service, the U.S. Mint, and the Federal Deposit Insurance Corp., which protects bank depositors, and more, are also not funded by annual congressional appropriations.

In its brief to the Supreme Court, the Biden administration noted that even programs like Social Security and Medicare are paid for by mandatory spending, not annual appropriations.

“This marks the first time in our nation’s history that any court has held that Congress violated the Appropriations Clause by enacting a law authorizing spending,” wrote the Biden administration’s Solicitor General Elizabeth Prelogar.

Lydon Larouche, The John Birch Society, and now cryptocurrency maniacs, including Elon Musk, have been after all of these agencies for decades.  Have they found the court and the basis that could do that?  Tottenberg also notes this.

A conservative bête noire

Conservatives who have long opposed the modern administrative state have previously challenged laws that declared heads of agencies can only be fired for cause. In recent years, the Supreme Court has agreed and struck down many of those provisions. The court has held that administrative agencies are essentially creatures of the Executive Branch, so the president has to be able to fire at-will and not just for cause.

This is from the Consumer Finance Monitor. “SCOTUS agrees to decide whether CFPB’s funding is unconstitutional but will not hear case until next Term.”  We’re going to have to watch this one.

The sole question presented by the CFPB’s petition is:

Whether the court of appeals erred in holding that the statute providing funding to the Consumer Financial Protection Bureau (CFPB), 12 U.S.C. 5497, violates the Appropriations Clause, U.S. Const. Art. I, § 9, Cl. 7, and in vacating a regulation promulgated at a time when the CFPB was receiving such funding.

Thus, by denying CFSA’s cross-petition and also rejecting CFSA’s request to consider the alternative grounds as antecedent questions to the CFPB’s petition, the Supreme Court is poised to decide the Appropriations Clause issue.

While the Court’s decision not to hear the case this Term means the Fifth Circuit decision will continue to be a cloud over all CFPB actions and could slow the pace of enforcement activity (particularly in pending cases where defendants can be expected to assert the Appropriations Clause issue as a defense), we do not expect it to impact the CFPB’s ongoing supervisory activity in any material way or deter Director Chopra from continuing to pursue his aggressive regulatory agenda.

Here’s an exciting read by Dave Troy, writing for The Washington Spectator, if you’d like to visit the crockpot of crazy folks wanting to tank our economy through debt default or any other possible way. “The Wide Angle: Crash the Global Economy? It’s Harder than It Sounds.”

Just yesterday, I visited the “Rage Against the War Machine” rally at the Lincoln Memorial. Organized by the Libertarian Party, the People’s Party, and the Schiller Institute (run by LaRouche’s widow, Helga Zepp), it was thick with leafleteers pushing LaRouche messaging and featured speeches by two dozen or so Putin-friendly speakers, including presidential candidates Jill Stein, Dennis Kucinich, Tulsi Gabbard, and Ron Paul.

One speaker led the crowd in a chant, “all wars are bankers’ wars,” bringing things full circle: the assertion being that it is only because we have departed from pure, good, and undefiled Austrian economics and the gold standard can (usually Jewish) bankers print the money required to fuel endless war. It seems no one at this anti-war rally had arrived at the most obvious solution: tell Vladimir Putin to withdraw his troops and go home.

Paul, the final live speaker of the day, predictably took the podium to chants of “End the Fed” with a phalanx of Russian flags behind him in the afternoon light. (Ironically, the Eccles Federal Reserve building, barely a block away, is undergoing renovations.)

The North-Paul strategy seems to be alive and well. The most obvious strategy to achieve it would be to crash the global economy by failing to raise the debt ceiling. Kevin McCarthy has repeatedly and explicitly stated his intent to pursue this, and the Washington Post recently reported that the strategy has been developed by former Trump budget director Russell Vought. But two things stand in his way.

The Debt Ceiling Crisis looms eminently. This is from Sahil Kapur and NBC News. “The big problem with trying to cut spending in a debt ceiling bill. President Biden and congressional leaders have a major hurdle to overcome as negotiators meet privately to consider a way forward and prevent a self-inflicted economic calamity.”

Heading into an expected meeting between President Joe Biden and congressional leaders this week, Republican lawmakers say an agreement on “spending caps” is important in securing their support to avert a dangerous debt default.

The House-passed debt ceiling bill would slash federal spending to fiscal year 2022 levels, requiring appropriators charged with allocating government funding to cut $131 billion compared with what Congress is currently spending.

Meeting that target without cutting defense funding would require a steep 17% cut to nondefense discretionary spending.

“Democrats will not let nondefense take a disproportionate share of deep cuts. So Republicans will have to moderate their cut demands if they want to spare defense,” said Brian Riedl, a former Senate Republican policy aide who now works at the Manhattan Institute, a conservative public policy think tank.

Riedl said they may be able to avoid the dispute by freezing spending rather than making cuts, suggesting “a two-year freeze” on federal spending as one possible endgame.

The trick is that Republicans do not want to touch Defense Spending. We’re not at war anywhere anymore so that should be the item to look for any cuts.  Spending on the Military generally is just about half of discretionary spending. No country spends the kinds of money we spend on its military budget.

We’re watching Turkey’s election go to run-offs while it appears Elon Musk is using Twitter in the interests of Erdogan and his business interests there.

Erdogan is currently trending on Twitter, along with a lot of information on how Twitter has successfully fought off Erdogan’s attempt to censor its content.

All of this should make for an interesting few weeks.

What’s on your reading and blogging list today?

9 Comments on “Mostly Monday Reads: The Case of Consumer Protection, Fiat money, and Other off-budget Agencies.”

  1. dakinikat says:

    There’s a lot of news out there that’s really weird. I guess the Congressional Republicans have lost all their witnesses and whistleblowers on the Biden kerfuffle. Could it be they never had any?

    • bostonboomer says:

      Very interesting post. I have to believe that the Biden administration will fight this wacky 5th circuit ruling tooth and nail. But first they have to stop Republicans from blowing up the global economy.

  2. bostonboomer says:

  3. bostonboomer says:

  4. bostonboomer says:

    • NW Luna says:

      All these repulsive men in power, coercing women. I hope he loses stupendously.

  5. NW Luna says:

    “The CFPB is not the only agency funded this way. The Federal Reserve itself is funded not by Congress but by banking fees. The U.S. Postal Service, the U.S. Mint, and the Federal Deposit Insurance Corp., which protects bank depositors, and more, are also not funded by annual congressional appropriations. … even programs like Social Security and Medicare are paid for by mandatory spending, not annual appropriations.”

    It’d be economic chaos if the Republicans win on this. It won’t be the rich that will suffer from such a decision — it’d be all the working class people who will be vulnerable.

    • dakinikat says:

      I was nearly freaking BB and JJ out with this when I sent the first of my articles to them. It’s a total wipeout of FDR’s legacy.

  6. dakinikat says: