CFPB Funding Scheme Survives Supreme Court Challenge

In a 7-2 decision, the U.S. Supreme Court upheld the mechanism for funding the Consumer Financial Protection Bureau (CFPB). The stakes were high for the CFPB, which had said that an adverse decision would threaten “the validity of virtually all CFPB past actions.”

In this case, payday lenders and other regulated businesses sought to strike down CFPB regulations and enforcement actions on grounds that the agency operated through an unconstitutional funding scheme. The CFPB action under challenge here was a regulation that restricted the ability of lenders to take payments directly from customer bank accounts.

Unlike most other federal agencies which go through an annual appropriations process, the CFPB sets its own budget up to a cap of 12 percent of the Federal Reserve System’s operating expenses. The CFPB is an independent financial regulator within the Fed System. According to the Supreme Court, Congress gave the Bureau “sweeping authority” and “shielded the Bureau from the influence of the political branches.”

In a majority opinion written by Justice Clarence Thomas, the Constitution permits the unusual funding arrangement because the relevant funding statute identifies the source of the funds and designates the purposes for which they may be used. According to the nation’s highest court, the Appropriations Clause of the Constitution requires nothing more.

In a 25-page dissent that was longer than the majority opinion, Justice Alito (joined by Justice Gorsuch) described the court’s decision as turning the Constitution’s “Appropriations Clause into a minor vestige.” The two conservative justices also said that the CFPB is being allowed to “bankroll its own agenda without any congressional control or oversight.”

Four years ago, the Supreme Court reined in the CFPB by striking down a statutory provision that limited the authority of the President to remove the Bureau’s head except “for cause.” As a result, the President now has a free hand in firing the CFPB Director.

Although this case represents a big win for the CFPB (I can already hear the sighs of relief emanating from the Bureau’s headquarters five blocks from AIS’s D.C. office), the broad reach of the agency’s authority may be likely to spawn future legal challenges having nothing to do with its funding methods. And some of those challenges may end up right back in the Supreme Court.

The case is Consumer Financial Protection Bureau, et al, v. Community Financial Services Association of America, et al., No. 22-448.