CFPB FUNDING
Consumer Financial Protection Bureau v. Community Financial Services Association
Date: May 16, 2024
Issue: Whether the Consumer Financial Protection Bureau’s (CFPB) funding structure violates the Appropriations Clause of the U.S. Constitution.
Case Summary: In a 7-2 decision written by Justice Clarence Thomas, the U.S. Supreme Court ruled the CFPB’s funding structure is constitutional.
The Appropriations Clause states, “no money shall be drawn from the Treasury, but in consequence of appropriations made by law.” When Congress created the CFPB in 2010, it determined the bureau would not receive its funding through an annual appropriation law, as most agencies do. Instead, it directed that the CFPB would receive funding directly from the Federal Reserve each year in an amount the CFPB director sees “as reasonably necessary”—up to an inflation-adjusted cap. The Federal Reserve, in turn, is also funded outside the ordinary appropriations process.
The Community Financial Services Association sued the CFPB to vacate its payday lending final rule, arguing it was promulgated using funds received in violation of the Appropriations Clause. The Fifth Circuit agreed and vacated the regulation. It ruled the CFPB’s funding structure violated the Appropriations Clause because the bureau has unilateral discretion to determine its own funding level, and the funds it receives are insulated from Congress’s control. The Supreme Court granted the CFPB’s certiorari petition on Feb. 27, 2023.
The American Bankers Association filed a coalition amicus brief arguing CFPB’s funding mechanism violates the Constitution’s structural protections embodied in the separation of powers and the Appropriations Clause. ABA also urged the Court to affirm the Fifth Circuit while providing targeted relief for the industry by severing the unconstitutional funding mechanism, leaving the rest of CFPB’s enabling act in place.
Reversing the Fifth Circuit, the Supreme Court ruled the statute authorizing CFPB’s funding qualifies as an “appropriation” because it specifies the amount (in the form of a cap), source and purpose of the public funds. The Court noted that unspecified but capped appropriations were commonplace after the founding. The Court also concluded Congress does not have to regularly or directly appropriate public funds, reasoning the Constitution’s two-year limit for appropriations for the Army implies authority to make standing appropriations in other contexts, which is confirmed by founding-era practice. The Court disagreed that upholding the CFPB’s funding structure under the Appropriations Clause would allow the executive to operate free of any meaningful fiscal check.
Justice Elena Kagan, writing for four Justices, concurred to emphasize that the CFPB’s funding scheme is consistent not only with founding-era practices but also with practices “at any other time in our nation’s history” up through the present day. Justice Ketanji Brown Jackson concurred separately, asserting “[w]hen the Constitution’s text does not provide a limit to a coordinate branch’s power, we should not lightly assume that Article III implicitly directs the Judiciary to find one.” Justice Samuel Alito, joined by Justice Neil Gorsuch, dissented, concluding “CFPB’s unprecedented combination of funding features affords it the very kind of financial independence that the Appropriations Clause was designed to prevent.”
Bottom Line: The decision rejects the constitutional challenge in the payday lending challenge and will allow the CFPB actions stayed during the pendency of this case to resume.
Documents: Opinion
