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Supreme Court to hear arguments on funding for financial protection agency

Case on Consumer Financial Protection Bureau could shape congressional power to fund agencies outside of normal appropriations

The Consumer Financial Protection Bureau building in Washington on March 29, 2021.
The Consumer Financial Protection Bureau building in Washington on March 29, 2021. (Bill Clark/CQ Roll Call)

The Supreme Court will hear oral arguments Tuesday in a case that threatens to wipe out funding for the Consumer Financial Protection Bureau and limit Congress’ ability to fund agencies outside of normal appropriations.

The Biden administration wants the justices to overturn a ruling from the U.S. Court of Appeals for the 5th Circuit that invalidated the CFPB’s funding structure as unconstitutional, a ruling that calls into question the actions the agency has taken since Congress created it in 2010 in response to the great financial crisis.

The case lands at a conservative-controlled Supreme Court that already has struck down one part of how Congress structured the agency, as lawmakers included provisions meant to insure its independence from Congress and the president.

But the agency’s defenders have argued that agreeing with the 5th Circuit on the CFPB’s funding structure could undermine a wide swath of federal agencies. The justices are expected to decide the case by the conclusion of the term at the end of June.

The case revolves around the Constitution’s Appropriations Clause, which prohibits government spending “but in Consequence of Appropriations made by Law.” Last year, for the first time ever, the 5th Circuit found that clause also limited how Congress could fund agencies.

The appeals court ruled the CFPB’s structure violated the Constitution because Congress allows it to draw funds from the Federal Reserve indefinitely, instead of through the congressional appropriations process.

Both sides agreed that Congress has funded agencies outside the appropriations process for more than a century, but they differed over how the CFPB fit in that picture.

The Biden administration pointed out that Congress has used fees to fund financial regulators, including for the Federal Reserve, Federal Deposit Insurance Corporation and more. Congress has funded agencies outside the appropriations process since it first established the Post Office in 1792.

“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 government wrote in a brief.

Funding structure

The case, Consumer Financial Protection Bureau v. Community Financial Services Association of America Ltd., grew out of a challenge to the bureau’s 2017 rule on payday lending from a pair of industry groups. The 5th Circuit rejected the groups’ challenges to the rule itself and instead held the entire agency’s funding structure violated the Constitution.

Industry groups have defended the 5th Circuit’s decision and argued the 2010 law allowing the CFPB to draw funds from the Federal Reserve indefinitely “flips the appropriations baseline” in favor of an executive branch agency.

“Rather than pass legislation selecting the specific sum of public funds that the CFPB receives annually, the 2010 Congress abdicated that critical decision to the agency itself,” the industry groups’ brief said.

Now, to reduce or even change the agency’s funding, both chambers of Congress would have to agree and likely deal with a presidential veto, the brief said.

The challengers also pointed to a portion of the 5th Circuit ruling that said the CFPB’s funding structure makes it uniquely “double-insulated” from accountability. The agency does not have to answer to Congress and doesn’t have to respond to the industry it regulates because its funding is drawn from elsewhere, the challengers argued.

“Unlike agencies that are fiscally and politically accountable directly to the public because they are funded through fees or assessments charged to the very people they serve or regulate, there is no check on the CFPB because it draws funds directly from the Federal Reserve System,” the challengers’ brief said.

Richard Samp, senior litigation counsel at the New Civil Liberties Alliance, said at the group’s event this month that the biggest question before the court “is going to be not so much does this funding structure here violate the Appropriations Clause, which I think it clearly does, but rather what about all the other agencies like the Federal Reserve?”

“Perhaps they are not as extreme as the way the CFPB is funded, but nonetheless might be subject to challenge if the CFPB funding structure is struck down,” Samp said.

Congressional power

More than 140 current and former members of Congress filed a brief in the case, arguing that Congress should have more independence on funding decisions than the 5th Circuit ruling would allow.

“The Appropriations Clause is designed to safeguard Congress’s power of the purse by ensuring that the Executive Branch cannot spend unless Congress has authorized it, but the Constitution leaves the details of how the appropriations are organized to Congress,” the brief said.

Sen. Elizabeth Warren, D-Mass., one of the signatories on the brief and original backer of the CFPB, said at an event Thursday that the 5th Circuit’s “radical” decision could jeopardize the funding structure for almost every financial regulator.

Warren also pointed out that entitlement programs like Social Security and Medicare are funded outside the normal appropriations process. A broad Supreme Court decision on the CFPB could sweep those programs in as well.

“A bad decision in the Supreme Court could wreck the financial security of millions of families and turn our economy upside down,” Warren said.

A brief from 132 Republican members of Congress sought to distinguish the CFPB as unique among federal agencies and backed the 5th Circuit’s ruling.

The brief pointed out the CFPB has automatic inflation adjustments to its funding, the ability to squirrel away cash for a rainy day and immunity from oversight by the House and Senate Appropriations committees.

They argued that they cannot change the agency’s funding except by amending the 2010 finance law, and that it is not funded by fees or fines from the entities it regulates.

“Such insulation means that Congress itself is not determining the CFPB’s funding,” the brief said.

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