Appellate court invalidates CFPB’s funding structure, small-dollar lending rule

A three-judge panel of the Fifth Circuit Court of Appeals today ruled that the Consumer Financial Protection Bureau’s funding structure violates the separation of powers clause of the Constitution. Uniquely among federal agencies, the CFPB receives its funding directly from the Federal Reserve System based on a request by the bureau’s director.

In the case, the Community Financial Services Association of America and the Consumer Service Alliance of Texas challenged the bureau’s 2017 small-dollar lending rule on several constitutional grounds. The Fifth Circuit panel agreed with the plaintiffs only on the CFPB’s “unique, double-insulated funding mechanism” and vacated the small-dollar lending rule. The case is expected to be appealed to a hearing by the full Fifth Circuit.

The court found that in setting up the CFPB’s funding structure, Congress ceded both direct control over the CFPB’s budget by insulating it from annual appropriations and indirect control by making the CFPB’s source also insulated from the appropriations process. “The Bureau’s perpetual insulation from Congress’s appropriations power, including the express exemption from congressional review of its funding, renders the Bureau ‘no longer dependent and, as a result, no longer accountable’ to Congress and, ultimately, to the people,” the court found, adding that the issue is more acute because of the CFPB’s expansive powers.