CFPB Says Funding Is Constitutional, Argues Appeals Court Erred

Brief says upholding appeals court ruling would lead to “profound disruption.”

A federal appeals court made a serious error when it adopted the “novel” view that the CFPB’s funding scheme was unconstitutional, the agency told the U.S. Supreme Court. 

“No other court has ever held that Congress violated the Appropriations Clause by passing a statute authorizing spending,” the bureau said, in its brief challenging the appeals court ruling.

And addressing the ruling’s section that voided the agency’s payday lending rule, the CFPB told the high court, “Nor has a court previously approved a similarly sweeping theory of retrospective relief, which threatens profound disruption by calling into question virtually every action the CFPB has taken in the 12 years since its creation.”

Backstory and Context

The generally conservative Fifth Circuit Court of Appeals ruled in October that because the agency does not go through the annual appropriations process, its funding scheme is unconstitutional. And, in the case, filed by the Community Financial Services Association of America (CFSA), the appeals court voided the payday lending rule.

The CFSA represents the payday lending industry.

The Biden Administration appealed that ruling and the Supreme Court agreed to consider the case.

Inside the Brief

In appealing the Fifth Circuit’s ruling, the CFPB maintained that while the agency is not subject to appropriations, Congress has other ways to monitor how it uses its funds, which are drawn from the Federal Reserve.

For instance, the bureau said, the agency must regularly submit reports and appear before congressional committees. And the Government Accountability Office conducts annual audits of the agency.

The Fifth Circuit acknowledged that other federal agencies—most notably federal financial regulators—also are funded outside the appropriation process but said the CFPB is novel and more insulated from congressional review.

The agency disagreed.

“The court of appeals’ novel and ill-defined limits on Congress’s appropriations authority contradict the Constitution’s text and congressional practice dating to the Founding,” the agency argued. “And the court compounded its error by adopting an unjustified and profoundly disruptive retrospective remedy.”

What Comes Next?

The CFSA’s brief is due by July 3. The court likely will hear oral arguments in the case this Fall.