Liam Conner
Washington – The Supreme Court on Thursday upheld the funding structure of the Consumer Financial Protection Bureau (CFPB), rescuing the consumer finance agency from another effort by its critics to weaken it.
The court said in a 7-2 decision that the agency’s funding structure complies with the Appropriations Clause of the Constitution. Justice Clarence Thomas authored the majority opinion. Justices Samuel Alito and Neil Gorsuch dissented.
“Under the appropriations clause, an appropriation is simply a bill authorizing expenditures from a specific source of public money for designated purposes,” Thomas wrote. “The statute providing the agency’s funding meets these requirements. We therefore conclude that the agency’s funding mechanism does not violate the Appropriations Clause.”
The decision reverses a ruling by the U.S. Court of Appeals for the 5th Circuit that found the consumer agency’s funding mechanism was unconstitutional.
The litigation, brought by two trade associations, posed a significant threat to the agency and its ongoing operations, and CFPB advocates warned that a sweeping decision could undermine regulatory and enforcement actions taken since its creation 14 years ago and disrupt markets.
At issue in the case was the mechanism through which the CFPB receives its funding. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the agency receives a limited amount of money from the Federal Reserve annually. In fiscal year 2022, the CFPB withdrew about $641.5 million from the Fed, less than the roughly $734 million available, according to court documents.
This scheme is different from the way other federal agencies receive their funding, which occurs through the annual appropriations process in Congress.
The legal battle over how the CFPB is funded stemmed from a challenge to a 2017 payday loan rule issued by the CFPB filed by the two trade groups, which represent payday lenders.
A federal district court sided with the CFPB, but the federal appeals court in New Orleans reversed and invalidated the regulation because it was “crafted through the agency’s unconstitutional funding scheme.”
The 5th Circuit ruled that the CFPB’s funding structure violated the Constitution’s Appropriations Clause, which states that “no money shall be taken from the Treasury but in consequence of appropriations made by law.” It ruled that Congress abdicated its appropriation power and ceded it to the Bureau, isolating it from the purse strings of the Legislative Branch.
The Biden administration appealed to the Supreme Court and warned that a decision overturning the CFPB’s structure would put other agencies that receive their funding in similar ways, such as the Federal Housing Finance Agency and the Federal Deposit Insurance Corporation, at risk.
The case was heard on the second day of the Supreme Court’s current term, and during arguments several expressed skepticism regarding arguments that the CFPB’s funding structure was unconstitutional.
Conceived by Senator Elizabeth Warren, a Massachusetts Democrat, to regulate consumer financial products, the CFPB has withstood several legal challenges from the agency’s opponents.
On a 2020 decision, the Federal Supreme Court considered the structure of the board – led by a single director who could only be removed by criteria – incompatible with the Constitution. But the court stopped short of dismantling the agency and instead said it could continue to operate, albeit with a director who could be removed by the president at will.
