A Step Forward for the Gluttons of Privilege, a Step Backwards for Everyone Else

Today's Supreme Court ruling, finding the mechanism by which the Consumer Financial Protection Bureau (CFPB) is funded to be constitutional is an unambiguous win for the American people. Unfortunately, however, it also represents a step forward for the gluttons of privilege who want to take the country back to the gilded age. The combination of the lower court's opinion, the amici curiae produced by allied regressive institutions, and today's' dissent from two giants of the regressive legal movement could provide fertile ground from which future regressive activists may find more success. In the aftermath of the success anti-choice crusaders had in their decades-long campaign to impose their retrograde value system on millions of Americans, this possibility should not be discounted.

Therefore in this piece I will look at the foundation of our financial regulatory system and how regressive activists could move forward in their efforts to destroy it.

The Panic of 1907 has fallen out of public consciousness, but its importance is hard to overstate. Marking the pinnacle of J.P. Morgan's power, it demonstrated, to all but the minds of the most fanatical proponents of laissez-faire economics, the limitations of the classical gold standard¹. In response to the panic, Congress took action, with the Pujo committee holding hearings on the "Money Trust," and passing the Aldrich-Vreeland act in 1908 which established the National Monetary Commission to propose remedies for what went wrong in 1907.

As a result, by the end of 1913 the United States created its first central bank since the demise of the Second Bank of the United States in the Van Buren administration. Excluding the Fed's shameful response to the Great Depression (well documented by Friedman and Schwartz), it, and the panoply of financial regulators that were created in the last eleven centuries have generally done a good job of maintaining financial order. While financial crises still occur with some regularity, any comparison between the financial stability of the United States before and after the creation of the Fed leaves no doubt as to the superiority of financial regulation to the free for all that prompted its creation.

Interestingly, in creating the Fed, Congress set up a then-unprecedented funding mechanism. Regulators like the EPA are appropriated money by Congress through the standard budgetary process. Financial Regulators like the Fed, OCC, FDIC, NUCA, FHFA, and SEC² are different.

While each is slightly different, each is able to use revenue it generates in the process of conducting its functions to pay for its activities. Since the creation of the Fed was being debated in Congress, devotees of the church of market fundamentalism have pointed to this feature as invalidating the constitutionality of these regulators, however, this group has failed to gain sufficient political power³ to fully undo them. All of these funding mechanisms are long established, so when Congress wanted to create an agency to protect consumers from financial manipulation, they approached it in a similar way. As a result, when the CFPB needs money to protect consumers in some way, it asks the Fed for money, and so long as the budgetary request is below 12 percent of the Fed's operating reserves, that request will be granted. This mechanism exists primarily to protect its mission to protect consumers, a group notorious for having coordination problems in lobbying congress, from a budgetary process that tends to benefit repeat players.

Those repeat players, like payday lenders, represented by the Community Financial Services Association (CFSA) naturally resent the government agency tasked with protecting their primary targets. As a result, they fiercely opposed many of the rules and regulations created by the CFPB that would limit their behavior. One such rule was one that governed automatic withdraws from customer accounts. In 2017, the CFPB banned lenders from making a third automatic withdrawal from a debtor's checking account after the first two had failed. This was done with the goal of limiting the overdraft fees borrowers from payday lenders would have to deal with.

After the election of President Trump in 2016, with the help of Mitch McConnell and Leonard Leo, the federal judiciary was drastically remade to promote and empower right-wing extremists. That is exactly what happened here. After losing their initial case, the CFSA appealed to a stronghold of regressive judicial thought: the Fifth Circuit, where three Trump-appointed judges issued a ruling holding that because its funding structure was unconstitutional, all rules and regulations it created while it was unconstitutionally funded would have to be nullified.

This absurd ruling drew opposition from all corners of the financial world, including the normally conservative Mortgage Bankers Association. Still, CFSA drew some support. Twenty Seven states' Attorneys General, 132 members of Congress, myriad Koch and Federalist tied legal foundations, and some business groups all filed amici curiae in support of some degree of nullification.

Luckily, the court's conservative majority is not yet far enough gone to have upheld the twisted logic of the Fifth Circuit, but two members, Alito and Gorsuch dissented. This dissent, while not carrying any force of law is the cornerstone of what the regressive fanatics who hearken for a return to the free for all that led to the panic of 1907. A Supreme Court dissent can be considered viable (if not in the specific case considered) legal reasoning by good faith actors, and I expect to see the bad faith actors employed by these Gluttons of Privilege to treat it as gospel.

What they gained by this effort were three things: a body of legal reasoning to suggest a much tighter interpretation of the definition of appropriations, a coalition of well-financed interests with some interest in nullifying federal financial regulators, and an openness among conservatives who focus on other issues to the cause of nullification. Today, this may not amount to much, but after the anti-choice right's decades-long crusade resulted in the 2022 overturning of Roe v. Wade, these nullifiers should not be taken lightly.

The fact that they were able to take such an absurd case to the Supreme Court, and get two Justices to support their goals is alarming, but what could happen next is even more so. Whoever wins in 2024 will serve until January 20, 2029. On that date, the current Justices' ages are in the following table:

Under a second Biden administration, it is unlikely Thomas, Roberts, or Alito would resign, but other circumstances could force either of their hands. The reverse is true of Sotomayor and a second Trump administration. If Biden is choosing who will make appointments, he will choose justices (and almost as importantly, lower court judges) who will oppose nullification. If Trump is doing the choosing, however, it is almost guaranteed, based on the lunatic monetary policy suggestions in Project 2025 that he will appoint nullifiers to the court.

At a minimum, that would convert Thomas' seat from against nullification to for it. I will have more to say about Project 2025's insane economic policy suggestions in future posts, but for now I want to emphasize: today was a win for the American people, but, it is by no measure the end of the fight to save America's system of financial regulation.

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