Social Security, Medicare, and other key programs Americans rely on could become 'vulnerable' depending on an upcoming Supreme Court ruling, a former federal official says
- The Supreme Court is hearing oral arguments in a case challenging the CFPB's funding structure.
- A former FDIC official said an adverse ruling could risk Social Security and Medicare.
The nation's highest court is about to hear arguments in a case that could have major implications for consumers nationwide.
On Tuesday, the Supreme Court will hear oral arguments in the case Consumer Financial Protection Bureau v. Community Financial Services Association of America Ltd., which argues the CFPB's independent funding structure is unconstitutional.
Since its establishment in 2011, the CFPB has relied on the Federal Reserve for funding rather than Congress' annual appropriations process, which the Fifth Circuit ruled last year is illegal. The Supreme Court is now taking on the case, and Sheila Bair — the former chair of the Federal Deposit Insurance Corporation — raised the risks of an adverse ruling in a Politico opinion piece last week.
"The opinion could lead to a sea change in how essential government agencies function — and to potential chaos every time Congress engages in brinkmanship over funding," Bair said.
"Essential government agencies and programs, including Social Security and Medicare, both of which are administered by independently funded bodies, would see their sources of independent funding vulnerable to challenge," she added. "The Federal Reserve, responsible for monetary policy and our payments system, would be particularly at risk, given that it runs on fees and profits from its market operations just like the CFPB."
Essentially, Bair said, deciding the CFPB can no longer be independently funded would open the floodgates for legal challenges against every other agency with a similar funding structure. It would also jeopardize those agencies' operations in the event of a government shutdown, for example, if their funding relied on Congress.
Bair referenced the 2008 financial crisis, during which she was serving as chair of the FDIC. She said the agency's independent structure allowed it to quickly boost funding to protect Main Street bank depositors, and without that structure, "people could have suffered delayed access to their insured deposit accounts as their failed banks shuttered until Congress saw fit to fund the agency."
Despite those concerns, the lenders that brought the lawsuit wrote in their legal filing that the CFPB should not have the authority to take "as much as hundreds of millions of dollars directly from the Federal Reserve each year forever." Congress ensured in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that the CFPB could request funding from the Fed so long as its request never exceeds $597 million, adjusted for inflation.
Still, advocates and lawmakers have stressed the importance of preserving the CFPB's funding structure to protect consumers from the potential fallout. Shahid Naeem, a senior policy analyst at the nonprofit American Economic Liberties Project, previously told Insider that "if you look at the parties involved in this case, you have a payday-lending lobby and then you have the CFPB, which was birthed out of the 2008 financial crisis by Congress as a way of protecting Americans from the kind of predatory and exploitative financial-services practices that got us into 2008 and various other crises as well."
The CFPB has performed a range of oversight actions over the past decade, including cracking down on predatory behaviors that have cost student-loan borrowers. Massachusetts Sen. Elizabeth Warren, who spearheaded the CFPB's creation, said during a speech last week that "the CFPB is the cop on the beat for the finances of America's families."
"The CFPB is future is at stake in this court decision, along with the future of every other banking regulator," Warren continued. "And the possible fallout doesn't stop there. Social Security and Medicare are also operated outside the annual appropriations process. A bad decision in the Supreme Court could wreck the financial security of millions of families and turn our economy upside down."
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