The U.S. Supreme Court, in a 7-2 decision, ruled yesterday that the CFPB’s funding mechanism does not violate the Appropriations Clause of the U.S. Constitution. 

In the Dodd-Frank Act, Congress provided that the CFPB would receive annual funding from the combined earnings of the Federal Reserve System.  Each year, the Federal Reserve Board is directed to transfer to the CFPB an amount determined by the CFPB Director to be reasonably necessary to carry out the CFPB’s authorities, with that amount not to exceed 12% of the Federal Reserve’s total operating expenses as reported in 2009 (approximately $600 million) as adjusted for inflation.   Among other arguments, the plaintiff trade groups argued that the Bureau’s funding mechanism is too open-ended in duration and amount to satisfy the constitutional requirement that there be an “Appropriatio[n] made by Law.”

The majority decision in CFSA v. CFPB was written by Justice Thomas.  Rejecting the plaintiffs’ argument, he wrote:

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.

Justices Alito and Gorsuch joined in a dissenting opinion.

The Supreme Court’s decision has far-ranging implications, most immediately for cases involving challenges to CFPB regulations or other CFPB actions.  Such cases include CFSA itself in which the Fifth Circuit invalidated the CFPB’s payday lending rule based on its conclusion that the CFPB’s funding is unconstitutional and the lawsuit challenging the CFPB’s credit card late fee rule in which the district court relied on the Fifth Circuit’s decision in CFSA to enter a preliminary injunction staying the late fee rule.  We will discuss the implications of the Supreme Court’s decision in subsequent blog posts.

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