On May 16, the U.S. Supreme Court
ruled 7-2 that the funding structure of the CFPB was consistent with the Constitution’s appropriations clause, reversing a decision of the U.S. Court of Appeals for the Fifth Circuit that had called the Bureau’s ability to continue operating without Congressional action into question. The Supreme Court recognized that the CFPB’s funding structure was unique: Congress authorized the Bureau to draw from the Federal Reserve System instead of appropriating funds through the annual appropriations process. However, the Supreme Court found that this unique feature did have constitutional significance. The only question presented was whether the Bureau’s funding mechanism was an “Appropriatio[n] made by Law.” The Supreme Court found that the answer was yes.
Specifically, The Supreme Court held that Congress’s statutory authorization to allow the Federal Reserve System to fund the CFPB satisfied the appropriations clause since “appropriations need only identify a source of public funds and authorize the expenditure of those funds for designated purposes to satisfy the Appropriations Clause,” and both criteria were met. The Supreme Court found the trade associations’ arguments as to why the Bureau’s funding mechanism violated the appropriations clause were unpersuasive.
The CFPB’s constitutionality was challenged following the Bureau’s promulgation of a 2017 regulation on payday lending. In response to a challenge to that regulation, the District Court for the Western District of Texas granted summary judgment to the CFPB; however, the U.S. Court of Appeals for the Fifth Circuit agreed with the trade associations’ arguments and reversed the lower court’s decision, holding that the CFPB’s funding mechanism violated the appropriations clause. The Supreme Court has now reversed this decision and remanded the case back to the court of appeals.
