Federal court finds CFPB funding structure constitutional

A federal court today ruled the Consumer Financial Protection Bureau’s funding structure constitutional ahead of an upcoming U.S. Supreme Court case on the matter, putting it at odds with another lower court decision that concluded the opposite. Uniquely among federal agencies, the CFPB receives its funding directly from the Federal Reserve System based on a request from the bureau’s director.

The Second Circuit Court of Appeals weighed in on the CFPB’s funding in a case involving a Tennessee law firm that is fighting an agency demand that the firm turn over documents relating to debt collection activities (CFPB v. the Law Offices of Crystal Moroney). The firm had alleged the order couldn’t be enforced because the CFPB’s funding violated the Appropriations Clause of the U.S. Constitution, and that Congress had unconstitutionally delegated its appropriations powers when setting up the agency’s funding. The three-judge panel court rejected both arguments. “Because the CFPB’s funding structure was authorized by Congress and bound by specific statutory provisions, we find that the CFPB’s funding structure does not offend the Appropriations Clause,” the judges ruled. Moreover, Congress “plainly provided an intelligible principle” to guide CFPB in setting its budget, they said.

The ruling conflicts with a decision last year by the Fifth Circuit Court of Appeals that concluded the CFPB’s funding structure was unconstitutional because Congress ceded direct control over the agency’s budget by insulating it from annual appropriations, and that it ceded indirect control by making the agency’s source also insulated from the appropriations process (CFPB v. Community Financial Services Association of America). The Supreme Court announced in February it would hear an appeal of the Fifth Circuit’s decision.