In Community Financial Services Association v. CFPB, which has been working its way through the courts since 2018, a three-judge panel of the 5th U.S. Circuit Court of Appeals (Louisiana, Mississippi, and Texas) threw out a CFPB regulation governing high-interest-rate lenders and ruled that the way the bureau is funded, is unconstitutional.
The immediate impact is that the Payday Lending Rule is suspended in Louisiana, Mississippi, and Texas. The CFPB is expected to appeal to the 5th circuit, to address the local issue, then to the Supreme Court to deal with national implications.
The more serious impact is that other CFPB rules might also be struck down, at least in the 5th Circuit.
The CFPB was created by the Obama administration and Congress in the wake of the financial crisis to better protect everyday Americans from getting cheated by banks, student loan and credit card companies and other financial firms. It has returned billions of dollars to consumers who it deemed have been treated unfairly.
To protect it from political influence, the CFPB receives its funding from the Federal Reserve, not Congress. It is that part of its structure that the court said violates the Constitution.
The CFPB is not unique as an agency that does not receive its annual funding determined by Congress — the Federal Reserve and the Federal Deposit Insurance Corporation both are funded in other ways.