It’s now up to the nine justices of the Supreme Court to decide whether the government’s consumer watchdog agency continues to exist.

The high court heard oral arguments Tuesday from a group of payday lenders seeking to bring down the Consumer Financial Protection Bureau (CFPB). The federal regulator has been the bane of the banking industry and conservative critics since it was established in 2010 in the 澳洲幸运5官方开奖结果体彩网:aftermath of the G﷽reat Financial Crisis. The CFPB seeks to overturn a ruling from a federal court in Texas that declared the agency’s funding structure—and hence, all the rules it’s made since its inception—unconstitutional.

The Supreme Court’s ruling, when it comes, could have far-reaching implications for all kinds of financial products and services currently subject to the bureau’s rules, legal experts said. A ruling against the CFPB would not only overturn consumer protection laws, but could cause havoc in the financial system, disrupting mortgage and auto lending among other services.

Potential for 'Chaos'

“The word ‘pandemonium’ comes to mind,” said Dalie Jiménez, a law professor at the University of California, Irvine when talking about a world wher🎀e the CFPB🔯 has been dismantled.

🙈For example, some CFPB rules protect mortgage lenders from lawsuits, offering a “safe harbor” against consumer and regulator lawsuits for companies that comply with regulations. Doing away with the CFPB co♏uld unleash a flood of lawsuits, and could even cause lenders to suspend giving out loans, Jiménez said.

The Mortgage Bankers association together with other trade groups in the real estate business warned the court in an amicus brief that disbanding the CFPB could make “the housing market could descend into chaos.”

The Community Financial Services Association of America and the Consumer Service Alliance of Texas originally sued the CFPB to stop a 2017 rule that forbids lenders from attempting to charge a customer’s bank account multiple times after the first two attempts fail for insufficient funds, a practice that can rack up overdraft fees for borrowers. In 2022, the Fifth Circuit Court of Appeals tossed out the rule on the grounds that the entire CFPB itself was unconstitutional.

Unlike some government agencies that are given funding by Congress every year and are paid for by taxes, the CFPB is funded through the Federal Reserve, insulating it from annual Congressional budget battles such as the one 澳洲幸运5꧑官方开奖结果体彩网🌠:threatening to shut down the government later this year.

At the heart of the challenge is the Constitution’s appropriations clause, which gives Congress the power over federal spending, saying that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.”

In Tuesday’s hearing, Noel Francisco, the lawyer representing the payday lenders, argued that the CFPB’s stru🔯cture was something the framers of the constitution never intended to exist, and that Congress had given up too much control over the agency’s funding. 

The government’s attorney, Elizabeth Prelogar, defended the CFPB’s structure, saying it was similar to the funding mechanisms of the Postal Service, the Federal Deposit Insurance Corporation, and the Customs Service (the precursor to the modern Customs and Border Protection agency).

Hearing Seemed To Go Well For CFPB

At times, even some of the court’s conservative justices appeared skeptical that the CFPB was fundamentally different from those other agencies.

“I think we're all struggling to figure out then, what's the standard that you would use, just assuming that you're right,” Amy Coney-Barrett, a Trump-appointed justice, asked Francisco. “How do you decide how much is too much or how specific is specific enough?”

Ted Mermin, a law professor at Berkeley and the executive director of the school’s Center for Consum﷽er Law and Economic Justice, cautioned against reading too much into the questioning since it’s not always possible to tell how the court will rule based on how the oral arguments go.

“I think that a majority of the justices have significant concerns about this challenge and the theory being presented to them regarding the effect of the appropriations clause,” he said. “The history and the clause are both on the side of the government here.”

However, he said, it was alarming that four justices—Neil Gorsuch, Clarence Thomas, Samuel Alito and Chief Justice John Roberts, appeared sympathetic to the lenders’ position, which Mermin called a fringe argument.

Compromise Decision Cဣo🎐uld Leave Issue to Congress

A ruling could come as soon as December, when the court begins handing down rulings, or as late as the end of June, when the court usually releases its more controversial decisions.

In addition to ruling strictly in favor of either party, the court could make a compromise, for example, asking Congress to remake the agency’s funding scheme, Mermin said. That would bring complications of its own, given that Congress is currently closely split between Republican and Democratic lawmakers who have shown little appetite for working together.

“I'm cautiously optimistic that the Court will uphold the CFPB's constitutionality,” Jeff Sovern professor at the University of Maryland Carey School of Law, said in an email.

Kicking the issue back to Congress, howe🗹ver, could be problematic for consumers, he said, since the ruling will come during an election year, amid ꦍan even more contentious environment than usual.

“It's a lot to expect a divided Congress to enact a law on which people are divided in an election year. If Congress responded by subjecting the CFPB to the appropriations process, that would also be a loss for consumers,” he said. “Historically, agencies subject to the appropriations process are often captured by the industry they are supposed to regulate, so that the regulated industry ends up governing its regulator.”