WASHINGTON, May 16 (Reuters) - The U.S. Supreme Court on

Thursday upheld the Consumer Financial Protection Bureau's

funding mechanism in a challenge brought by the payday loan

industry, handing a victory to President Joe Biden's

administration and a setback to the agency's conservative

critics.

The 7-2 decision reversed a lower court's ruling that the

CFPB's funding design - drawing money each year from the Federal

Reserve instead of from budgets passed by lawmakers - violated a

provision of the U.S. Constitution giving Congress the power of

the purse.

The CFPB was established under a law signed by Democratic

former President Barack Obama in 2010 to curb the kind of

predatory lending that contributed to the 2007-2009 financial

crisis. The agency has delivered $19 billion of relief to

consumers including a $3.7 billion settlement in 2022 with Wells

Fargo ( WFC ).

Many conservatives and their Republican allies have

portrayed the CFPB as part of an overbearing "administrative

state," the network of agencies responsible for the array of

federal regulations affecting businesses and individuals.

Republican lawmakers overwhelmingly opposed the CFPB from

the start, contending it wields too much power and burdens banks

and other lenders with unnecessary red tape. Prominent

pro-business groups including the Chamber of Commerce filed

briefs in support of the payday lenders in this case.

Payday loans are short-term and high-interest loans

typically due on the borrower's next payday after the loan is

made, with the annual percentage rate usually steep - 390% or

more, according to the U.S. Federal Trade Commission.

In 2018, the Community Financial Services Association of

America and the Consumer Service Alliance of Texas, trade groups

representing the payday loan industry, sued the agency, taking

aim at a 2017 regulation designed to curb "unfair" and "abusive"

practices by certain high-interest lenders. The regulation stops

lenders from trying to charge a borrower's bank account after

two unsuccessful attempts in a row.

The lawsuit challenged the agency's funding design as a

violation of the Constitution's "appropriations clause," which

vests spending authority in Congress.

The Supreme Court, with its 6-3 conservative majority, has

taken a dim view of expansive authority for federal agencies

including the Environmental Protection Agency in important

rulings in recent years.

A federal judge in 2021 sided with the CFPB. But the New

Orleans-based 5th U.S. Circuit Court of Appeals in 2022 ruled

that the funding structure violated the appropriations clause in

a decision that also invalidated the regulation at issue. The

decision was made by a panel of three judges who had been

appointed by Republican former President Donald Trump.

Biden's administration had told the Supreme Court that

invalidating the CFPB's funding arrangement could endanger

similarly structured agencies including the Federal Deposit

Insurance Corporation, Office of the Comptroller of the Currency

and the Federal Reserve Board.

Supporters of the agency also had said a ruling against the

CFPB would leave consumers vulnerable to deceptive and abusive

practices, and could place the CFPB's existing regulations on

shaky legal ground.

The Supreme Court heard arguments in the case in October.