An effort to unwind a major financial regulator ran into a skeptical Supreme Court during oral arguments Tuesday, as several justices seemed hesitant to curtail the congressional power to make federal funding decisions.
The justices grappled with how to handle a decision from the U.S. Court of Appeals for the 5th Circuit, which held that the way Congress set up funding for the Consumer Financial Protection Bureau violated the Constitution.
Instead of going through the normal appropriations process, Congress allows the agency to draw funds from the Federal Reserve up to a cap of $600 million.
The Biden administration told the justices Tuesday that Congress has funded other agencies in a similar way and invalidating the CFPB could have sweeping consequences across the federal government.
The challengers argued that the agency’s funding structure is unique and steps on the separation of powers the founders had envisioned with the Appropriations Clause, which gives the power of federal spending to Congress.
Noel Francisco, arguing on behalf of two financial services industry groups that challenged a 2017 payday lending rule, said the CFPB’s current structure risks “tyranny” by demolishing that congressional check on presidential power.
Changing the CFPB appropriations would require Congress and the president to agree and change the law, Francisco said.
“Congress has never authorized an agency to pick its own perpetual appropriation, and if it can do that for the CFPB, it can do that for every other agency too,” Francisco said.
But most of the court’s justices, including several conservatives, repeatedly asked the challengers to more sharply define how Congress violated the Constitution. Justice Clarence Thomas at one point said that “we need a finer point” than the challengers so far provided.
“I get your point that this is different, that it’s unique, that it’s odd, that they’ve never gone this far,” Thomas said. “But that’s — not having gone this far is not a constitutional problem.”
Francisco pointed to how the agency decides its own funding, draws it from another agency already outside the appropriations process and does so without interacting with the market that it regulated.
Justice Amy Coney Barrett said she was “struggling” with how to articulate a rule Congress had broken when it set up the agency. Justice Brett M. Kavanaugh pointed out that Congress could always pass legislation changing the funding structure if it wished and “there is nothing perpetual or permanent about this” agency’s funding.
The justices in the court’s liberal wing challenged Francisco more directly. Justice Elena Kagan said Francisco seemed to be arguing that agencies set up in the founding era, like the Customs Service, violated the Constitution.
“You’re flying in the face of 250 years of history,” Kagan said.
Solicitor General Elizabeth Prelogar argued that upholding the 5th Circuit decision would have “sweeping implications and would be profoundly disruptive” to the financial sector, where thousands of businesses have relied on CFPB determinations.
Congress has funded financial regulators outside of the annual appropriations process “by default” for more than a century, Prelogar said, and the CFPB uses a similar funding structure to agencies like the Federal Reserve.
Further, Prelogar said Congress funded more than half of the government through so-called “standing” appropriations similar to the CFPB.
“Even today in the 2022 Consolidated Appropriations Act, we counted more than 400 uses of this kind of discretion to spend up to a specified cap,” Prelogar said.
The court is expected to issue a ruling before the conclusion of the term at the end of June.