Update 781 — SCOTUS Affirms CFPB Funding,
Biden Hikes China Tariffs, to Lead Econ. Week
The U.S. Supreme Court upheld the constitutionality of the Consumer Financial Protection Bureau’s independent funding mechanism in a 7-2 ruling handed down yesterday. Justice Clarence Thomas joining and indeed writing the majority opinion may have been the biggest surprise. Consumer advocates and activists rejoiced and rallied nationwide.
On Tuesday, President Biden announced steep tariff increases on a strategic set of Chinese parts and products ranging from semiconductors to EVs in an effort to protect domestic industry and jobs. We report below on these developments and key economic policy hearings on the Hill this week below.
Good weekends, all…
Best,
Dana
Headline
Supreme Court Upholds CFPB’s Funding Structure
The Supreme Court ruled yesterday that the funding structure Congress chose for the Consumer Financial Protection Bureau (CFPB) when they passed the Dodd-Frank Act in 2010 is constitutional in a 7-2 decision.
The case, Consumer Financial Protection Bureau v. Community Financial Services Association of America, Ltd., was brought by a trade group representing the payday loan industry over a CFPB rule that prohibited lenders from withdrawing funds from consumer accounts after two failed attempts due to lack of funds.
The payday lending group raised the weak if not unfounded argument that the CFPB’s funding, which is drawn from the Federal Reserve, is unconstitutional, therefore invalidating the rules it has put forward. The CFPB’s mechanism was, however, intentionally designed by Congress to insulate the agency from the partisan nature of the appropriations process, with Congress acting fully within its remit. An adverse ruling by the Court could have led to Social Security, Medicaid, Medicare, and countless other federal programs similarly funded outside of the appropriations process being invalidated. The overwhelming majority of justices ruled to reaffirm the independence of the CFPB’s funding in line with the wishes of Congress.
CFPB v. CFSA is just one in a long line of attacks against the CFPB and its work to protect consumers by the financial industry, and a case that should never have made it this far. The case proceeded to the Supreme Court after the Fifth Circuit Court of Appeal ruled against the CFPB. In recent years, the Fifth Circuit, dominated by Trump-appointed judges, has issued egregious rulings advancing dangerous right-wing policy positions like this one. This trend has led to judge shopping, a strategy in which plaintiffs intentionally file their complaint in a specific location so that the Court of their choice will eventually consider it.
The banking industry has used the same strategy in challenging the CFPB’s credit card late fee rule which would make late fees more reasonable and proportional to the costs of handling late payments rather than needlessly punitive. The rule is projected to save Americans more than $9 billion a year. The decision is good for consumers, honest businesses and communities across the country.
Biden Announces Targeted Tariffs on Chinese Imports
On Tuesday, President Biden announced tariffs on $18 billion worth of annual imports from China in the following sectors, staggered to take effect between 2024 through 2026:
Source: Bloomberg
To counter what the administration deems “unfair trade practices,” the President’s announcement is targeted at industries and products that could threaten American manufacturing jobs and national security. The President aims to protect and strengthen vital industries and jobs at risk from Chinese trade practices. In particular, the tariffs are meant to counter China’s practice of flooding the global market with cheap, government-subsidized products to grow China’s market share and undercut global competition on key products such as solar panels.
Economists are largely wary about the use of tariffs as they raise consumer prices as a result of increased costs for American businesses that import the targeted goods. Many are fearful of the prospect that tariffs on Chinese goods could reignite a trade war. Some reports, such as a new Oxford study, found that Biden’s new tariffs could only push inflation up by as little as 0.01 percent.
Through the Inflation Reduction Act and the Bipartisan Infrastructure Law, the Biden Administration has invested hundreds of billions of dollars into new clean energy projects. Additionally, President Biden implemented a tax credit of up to $7,500 for EV purchases to prop up America’s domestic electric passenger vehicle industry. China is responsible for 60 percent of all global EV sales, 80 percent of the global solar module production capacity, and a commanding proportion of its battery capacity, making it the global leader in many clean energy technologies. While America’s own clean energy industries are growing, they have a long way to go before they catch up to China.
As the Presidential election nears, both candidates will continue to outline their visions for trade more broadly. Former President Donald Trump has already floated the notion of a 10 percent across-the-board tariff, immediately alarming economists about the impact on inflation.
Other Developments
House Appropriations Chairman Cole’s “Interim” 302(b)s
Yesterday, the new Chairman of the House Appropriations Committee Tom Cole (R-OK) released preliminary guidance detailing the topline spending amount for Fiscal Year 2025 (FY25) which will begin on October 1:
- Defense: $895.212 billion ($886 billion in FY24)
- Non-Defense: $710.688 billion ($773 billion in FY24, including side deals)
- Total: $1.606 trillion (1.659 trillion in FY24, including side deals)
He also released the component “interim” details — the share of the top-line that will go to each of the 12 Appropriations Subcommittees, otherwise known as 302(b) allocations.
While the topline figures are consistent with the Fiscal Responsibility Act (FRA), an agreement made between former Speaker of the House Kevin McCarthy and the Biden administration last year, Chairman Cole notably excluded “side deals” meant to boost non-defense discretionary (NDD) spending outside the tight FRA caps.
As such, domestic non-defense programs will be cut by around 6 percent relative to FY24 under Chairman Cole’s caps, though cuts are not evenly distributed amongst the 12 appropriations subcommittees. Specifically, Labor, Health and Human Services and Education (Labor-HHS), State and Foreign Operations (SFO), and Financial Services and General Government (FSGG) are facing cuts upwards of 10 percent.
These cuts are in stark contrast to Republican priorities like Homeland Security and Veterans Affairs, which will be fully funded. Defense, another main GOP priority, received a marginal increase of $9 billion, around 1 percent higher relative to FY24 funding.
The opening round of FY25 appropriations process is expected to play out in a similar manner as FY24, in which we saw extreme proposals from House Republicans that cut funding for NDD priorities and included a wide array of controversial policy riders in contrast to bipartisan funding proposals from the Senate. The funding guidance issued by Chairman Cole this week should be seen as a floor, not a ceiling, while we continue to push to adequately fund progressive priorities. As Congress is all but certain to turn to a Continuing Resolution (CR) to push the FY25 deadline past November’s election, and possibly into the new year, there will surely be a different political landscape when Congress considers final FY25 funding legislation.
Schumer Offers Road Map for Federal Approach to AI
On Wednesday, Senate Majority Leader Chuck Schumer – speaking for the bipartisan “Senate AI Gang” that also includes Senators Mike Rounds (R-SD), Martin Heinrich (D-NM), and Todd Young (R-IN) – put forward a 31-page roadmap calling for $32 billion over the next three years for AI development and for creating safeguards for AI use. The group’s roadmap proposed the following policy measures:
- Investment in new research and development
- Investment in new testing standards to better understand the potential harms of artificial intelligence
- New requirements for transparency in AI use
- Studies into the potential impact AI could have on the economy, including American jobs
The roadmap caps off a year of effort as Leader Schumer sought to make AI a priority, conducting public forums and private hearings that included talks with tech industry leaders such as Mark Zuckerberg and Bill Gates.
The offering has met with a mixed reception from advocates and industry leaders. Consumer advocates complained that the roadmap is too vague in protecting Americans from AI’s potential harms. That said, this roadmap is just the beginning of the Senate’s AI efforts. Schumer stated that he expects additional AI bills to pass the Senate by the year’s end, but expects AI work to continue into the next Congress. On Wednesday, the Senate Rules Committee advanced three bipartisan bills addressing the role of AI in elections, including the Protect Elections from Deceptive AI Act introduced by Senator Amy Klobuchar (D-MN). In the past few years, lawmakers have proposed legislation on a wide range of issues related to AI, especially criminal activity such as fraud and the violation of people’s privacy.
Hearing and Markup
Banking Regulators Appear Before Congress
This week, leaders of federal banking regulators – Federal Reserve Vice Chairman for Supervision Michael Barr, Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg, and Office of the Comptroller of the Currency (OCC) Acting Comptroller Michael Hsu – testified before the House Committee on Financial Services and Senate Committee on Banking, Housing, and Urban Affairs on a broad range of issues. These included:
- The independent review of misconduct at the FDIC released last week – The report found hundreds of reports of sexual harassment, discrimination, and other interpersonal misconduct that occurred within a misogynistic, patriarchal, insular, and outdated workplace culture. It described a “widespread fear of retaliation” and a “lack of clarity and credibility around internal reporting channels.” Ranking Member of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy Bill Foster (D-IL) called on Gruenberg to resign after the report was released while Representative Ayanna Pressley (D-MA) said during the hearing “I do not have confidence that you can continue to lead in this role.” Most other Democrats slammed Gruenberg for his agency’s failure to protect its employees but stopped short of calling on him to step down. Republicans in both chambers broadly called for Gruenberg to resign.
- The Basel III Endgame proposal – Senate Banking Committee Chair Sherrod Brown (D-OH) discussed the Fed, FDIC and OCC’s joint Basel III Endgame proposal and called on regulators to “finalize a strong capital rule that protects Americans.” Fed Vice Chairman for Supervision Barr noted that the agencies were reviewing public comments and would put forward “a set of broad, material changes to the proposal that allow us to have a broad consensus.” Stronger capital standards would ensure that America’s largest and most complex financial institutions have stronger buffers to protect themselves during periods of stress. We echo Chair Brown’s call for the finalization of a strong capital rule.
- Federal banking agencies’ proposal to implement Section 956 of Dodd-Frank – Several Democrats also highlighted a proposal by four federal agencies, including the FDIC and OCC to finally implement Section 956 of the Dodd-Frank Act, banning executive compensation plans that incentivize inappropriate risk-taking at financial institutions. Brown noted that “this new rule can’t go forward without the Federal Reserve joining the process.”
HFSC Advances Slate of Largely Deregulatory Legislation
Yesterday, the House Financial Services Committee voted to advance eleven pieces of legislation – ten bills and one Congressional Review Act (CRA) resolution – at a whole-day markup. These include:
- H.R. 8338, Clarity in Lending Act, led by Representative Young Kim (R-CA) – This legislative package is particularly dangerous to consumers. The package was passed in a 27-22 party-line vote, with every Committee Democrat opposing. It would attack the CFPB’s rule implementing Section 1071 of the Dodd-Frank Act, which is designed to protect small businesses from discrimination by financial institutions when they seek to access lending services. The legislation would provide waivers of compliance and enforcement requirements for five years after the rule is modified or guidance about compliance is issued. Additionally, it would make it significantly harder for the CFPB to protect the privacy of small business lending data.
- H.R. 758, Promoting Access to Capital in Underbanked Communities Act of 2023, led by Representative Andy Barr (R-KY) – This legislative package would, among numerous other harmful provisions, effectively remove many banks from CFPB oversight.
- H.R. 8337, Bank Resilience and Regulatory Improvement Act, led by Representative Andy Barr (R-KY) – The bill would limit regulatory review of revised business plans for de novo banks to 30 days (otherwise they would be automatically approved).
20/20 Vision strongly opposes the three pieces of legislation and encourages members to oppose them, should they move forward.