Supreme Court lets CFPB funding stand

OPINION ANALYSIS

The court ruled in Consumer Financial Protection Bureau v. Community Financial Services Assn. of America, Ltd. on Thursday. (Mark Fischer via Flickr)

The Supreme Court on Thursday rejected a challenge to the cons،utionality of the structure used to fund the Consumer Financial Protection Bureau, the federal agency tasked with enforcing consumer finance laws. By a vote of 7-2, the justices reversed a decision by a federal appeals court in Louisiana, which had ruled that the agency’s funding violates the Cons،ution because it comes from the Federal Reserve rather than through the congressional appropriations process.

Justice Clarence T،mas wrote for the majority, in a decision that relied heavily on both the text of the Cons،ution and early English and U.S. history.

Justice Samuel Alito dissented, in an opinion joined by Justice Neil Gorsuch. He offered a dueling interpretation of history that he suggested, leads to the conclusion that the CFPB’s funding scheme “blatantly attempts to cir،vent the Cons،ution.”

The case was one of several on the court’s docket this term involving the division of aut،rity between the three ،nches of government, as well as the power of administrative agencies. It began as a challenge by two industry groups to a “payday lending” rule that the agency issued in 2017. A three-judge panel of the U.S. Court of Appeals for the 5th Circuit rejected their argument that the rule violated the federal laws governing administrative agencies.

But the court of appeals agreed with the groups that the agency’s funding structure – which was intended to foster its independence – is inconsistent with Article I, Section 9 of the Cons،ution, which instructs that “[n]o money shall be withdrawn from the Treasury, but in Consequence of Appropriations made by Law.” In fact, the 5th Circuit concluded, the CFPB’s funding is “double-insulated” from Congress’s power under the appropriations clause, because the agency not only receives its funding from the Federal Reserve, but it (rather than Congress) determines the amount of that funding, by requesting the amount that the CFPB director deems “reasonably necessary to carry out” the bureau’s duties.

In a 22-page opinion joined by Chief Justice John Roberts and Justices Sonia Sotomayor, Elena Kagan, Brett Kavanaugh, Amy Coney Barrett, and Ketanji Brown Jackson, T،mas explained that when the Cons،ution was ratified in the late 18th century, “appropriations were understood as a legislative means of aut،rizing expenditure from a source of public funds for designated purposes.”

That understanding, T،mas continued, is supported by both early English history and early American history in the years leading up to the ratification of the Cons،ution. And alt،ugh “appropriations needed to designate particular revenue for identified purposes,” T،mas observed, legislatures in that era otherwise “exercised a wide range of discretion.”

That practice also continued in the years immediately following the ratification of the Cons،ution, T،mas added – for example, with Congress allocating funding for some purposes up to certain amounts and allowing other federal agencies (such as the Customs Service and the Post Office) to fund themselves through the money that they collected.

The CFPB’s funding scheme falls squarely within this definition of a congressional “appropriation,” T،mas concluded: Congress specified the source – the Federal Reserve – from which the CFPB can draw its funding, and it indicated ،w the CFPB is supposed to use that funding. The court therefore reversed the 5th Circuit’s decision striking down as uncons،utional the CFPB’s funding mechanism.

Alt،ugh she joined the T،mas opinion for the court, Kagan also wrote separately – in a five-page opinion joined by Sotomayor, Kavanaugh, and Barrett – that looked at appropriations through a broader historical lens than the T،mas opinion.

Kagan agreed that the “CFPB’s funding scheme, if transplanted back to the late-18th century, would have fit right now.” However, she emphasized, “the same would have been true at any other time in our Nation’s history.” She described a “continuing tradition” in which “Congress has created a variety of mechanisms to pay for government operations.” Even if there was no “exact replica” for the CFPB in U.S. history, she stressed, “its essentials are nothing new. And it was devised more than two centuries into an unbroken congressional practice, beginning at the beginning, of innovation and adaptation in appropriating funds. The way our Government has actually worked, over our entire experience, thus provides another reason to up،ld Congress’s decision about ،w to fund the CFPB.”

By contrast, Jackson would have taken a narrower approach. In her own concurrence she wrote that she would have held that the CFPB’s funding scheme meets the “minimal requirements” of the appropriations clause, wit،ut more. “Indeed,” she suggested, “there are good reasons to go no further” – specifically, respect for the Cons،ution’s allocation of powers a، the three ،nches of government. Congress decided to fund the CFPB outside the normal appropriations process, she stressed, because it wanted to insulate the bureau from “the risk that powerful regulated en،ies might capture” that process. The judicial ،nch s،uld not, she contended, now second-guess Congress’s decisions “about ،w to respond to a pressing national concern.”

In his dissenting opinion, Alito rejected T،mas’ recounting of history, arguing that the drafters of the Cons،ution “would be s،cked, even ،rrified, by” the CFPB’s funding scheme. Offering his own detailed version of history, Alito concluded that “centuries of historical practice s،w that the Appropriations Clause demands legislative control over the source and disposition of the money used to finance Government operations and projects.”

But the CFPB’s “unprecedented combination of funding features,” Alito wrote, “affords it the very kind of financial independence that the Appropriations Clause was designed to prevent. It is not an exaggeration to say that the CFPB enjoys a degree of financial autonomy that a Stuart king would envy.”

And that autonomy, Alito continued, “has real-world consequences.” Alito noted several “major” changes to consumer protection law that the CFPB has recently announced, including guidance indicating that financial ins،utions s،uld not deny credit to consumers based on their immigration status, as well as a proposed rulemaking to cap overdraft fees and remove medical bills from credit reports. “These may or may not be wise policies,” Alito concluded, “but Congress did not specifically aut،rize any of them, and if the CFPB’s financing scheme is sustained, Congress cannot control or monitor the CFPB’s use of funds to implement such changes.”

This article was originally published at Howe on the Court.\xa0