On May 16, 2024, the U.S. Supreme Court held 7-2 in Consumer Financial Protection Bureau et al. v. Community Financial Serves Association of America, LTD., et al. that the Consumer Financial Protection Bureau's (CFPB) funding is constitutional. This decision overturns a U.S. Court of Appeals for the Fifth Circuit decision which held that the CFPB's structure was unconstitutional and violated the Appropriations Clause of the U.S. Constitution.
The Appropriations Clause limits how agencies can be funded. While Congress provides funding for most agencies on an annual basis, the CFPB was authorized to draw as much money as is "reasonably necessary to carry out" its duties from the Federal Reserve System but is limited to not more than 12 percent of the Federal Reserve System's total operating expenses. This decision clarifies that an appropriation is valid so long as the appropriation identifies a source of public funds and authorizes the use of those funds for an agency's designated purpose.
The Case
The CFPB promulgated the payday lending rule as part of its stated effort to curb high interest consumer loans. The rule was challenged by the Community Financial Services Association of America and the Consumer Services Alliance of Texas in the U.S. District Court for the Western District of Texas. The trade associations claimed that the CFPB's funding structure was a violation of the Appropriations Clause.
While the District Court ruled against the trade associations, the Fifth Circuit, upon appeal, agreed that the CFPB violated the Appropriations Clause because its funding mechanism "[usurped] Congress's role in the appropriation of federal funds" because the CFPB did not require a specific legislative action to receive money and held that an appropriation, in addition to authorizing an agency to receive funds up to a certain amount, must also contain a certain "cap" on an agency's ability to choose its own level of funding.
Both the CFPB and the trade associations agreed that the CFPB's funding structure was subject to the Appropriations Clause. The Supreme Court held that, contrary to the Fifth Circuit's decision, under the Appropriations Clause, "an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes" and it is sufficient for an appropriation to identify a source of public funds and authorize the use of those funds for the designed purpose of an agency. Appropriations can be implemented through a standing authorization, and do not require Congress's annual review. From there, the Supreme Court held that the CFPB's funding structure met the requirements for being an appropriation.
The funding statute authorizes the CFPB to receive funds from a source (the Federal Reserve System) and specifies how the CFPB may use those funds (to pay the CFPB's expenses in carrying out its duties and responsibilities). The Supreme Court noted that other agencies, such as the Post Office which are funded through the collection of fees, also had similar funding structures with appropriations through standing authorizations.
Impact
The CFPB may continue operating as it has since its inception, and the Supreme Court's decision does not impose any restrictions on the CFPB's funding or ability to operate. Since its inception in 2010, the CFPB reports that more than 195 million consumers and consumer accounts have received $19 billion in the form of monetary compensation, principal reductions, cancelled debt and other consumer relief. Enforcement actions have resulted in $4.8 billion in civil penalties, and CFPB enforcement actions have increased every year since 2021. The CFPB has also indicated a willingness to hire more enforcement attorneys. The Supreme Court's decision ensures that the CFPB may continue as planned with its agenda.
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