Thursday, May 16, 2024

FYI: SCOTUS Rules CFPB Funding Mechanism is Constitutional

The Supreme Court of the United States ruled that the federal Consumer Financial Protection Bureau's funding mechanism complies with the United States Constitution's Appropriations Clause.


A copy of the opinion is available at:  Link to Opinion


This is the second time in four years the Supreme Court has rejected a constitutional attack on the CFPB's authority.


This most recent challenge attacked the Bureau's funding structure which the U.S. Court of Appeals for the Fifth Circuit ruled as unconstitutional.


Justice Clarance Thomas, writing for the seven-justice majority, disagreed with the lower court. "Under the Appropriations Clause, an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes. The statute that provides the Bureau's funding meets these requirements. We therefore conclude that the Bureau's funding mechanism does not violate the Appropriations Clause."


Unlike most other federal agencies, the Bureau does not ask Congress for funding. Instead, it obtains its funds by making a request to the Federal Reserve, and that request may not exceed 12% of the Federal Reserve's "total operating expenses."


The Fifth Circuit held this scheme violated the Appropriations Clause which grants Congress exclusive control over "the federal purse." The Fifth Circuit reasoned Congress' funding control is a necessary apparatus to the checks and balances between the three branches of the federal government. The Appropriations Clause prevents "the executive [branch] . . . from unilaterally spending funds," by allowing Congress to retain control of the purse strings. The CFPB, in the end, holds the strings to the purse, not Congress, and so it is constitutionally defective, according to the Fifth Circuit's opinion.


Justice Thomas saw it differently. "Based on the Constitution's text, the history against which that text was enacted, and congressional practice immediately following ratification, we conclude that appropriations need only identify a source of public funds and authorize the expenditure of those funds for designated purposes to satisfy the Appropriations Clause."


Justice Samuel Alito delivered a dissent, joined by Justice Gorsuch. The dissent criticized the majority opinion as undermining the checks and balances protection afforded by the Appropriations Clause, causing it to be nothing more than "a minor vestige."


A concurring opinion was delivered by Justice Kagan, which was joined by Justices Sotomayor, Kavanaugh and Barrett. Justice Jackson filed a separate concurring opinion.


The CFPB issued a statement Thursday applauding the decision. "This ruling upholds the fact that the CFPB's funding structure is not novel or unusual, but in fact an essential part of the nation's financial regulatory system, providing stability and continuity for the agencies and the system as a whole. As we have done since our inception, the CFPB will continue carrying out the vital consumer protection work Congress charged us to perform for the American people."


The Chairman of the House Financial Services Committee, Patrick McHenry (NC-10), on Thursday said, "Despite the setback from today's ruling, Republicans will continue the fight to rein in the rogue CFPB. To be clear, this Supreme Court opinion yet again emphasizes that Congress has exclusive authority and discretion over federal agencies' funding structures. The House must urgently take up Congressman Andy Barr's CFPB Transparency and Accountability Reform Act. This commonsense legislation will fix the mistakes of Dodd-Frank which set the dangerous precedent of tapping the central bank to fund partisan political objectives. It's past time the CFPB is held accountable to the American people through their elected representatives."




Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, Suite 3300
Chicago, Illinois 60602
Direct:  (312) 551-9320

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