As a result of the financial crisis, Congress passed a law creating the Consumer Financial Protection Bureau (the “CFPB”). Funding for the CFPB was not to be from yearly appropriations, but rather the CFPB obtains its funding from the Federal Reserve System. More specifically, the CFPB may draw from the Federal Reserve an amount that the Director of the CFPB believes is “reasonably necessary” to carry out its duties, subject to an inflation adjusted cap of twelve percent of the Federal Reserve System’s operating expenses as reported in 2009. 12 U.S.C. §§ 5497(a)(1), (2). Certain trade associations of payday lenders and credit-access lenders challenged a payday lending rule, arguing that the manner of funding of the CFPB was unconstitutional and therefore the rule was invalid. The plaintiffs argued that the funding violates the Appropriations Clause of the Constitution, which provides that “[n]o Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law.” Art. I, § 9, cl. 7. The Fifth Circuit Court of Appeals agreed with the plaintiffs and held that because the funding was unconstitutional, the regulations at issue were invalid. Other courts in the Fifth Circuit applied this ruling, holding other regulations to be invalid. The CFPB sought certiorari from the Supreme Court.
In Consumer Fin. Prot. Bureau v. Cmty. Fin. Servs. Ass'n of Am., Ltd., 601 U.S. 416 (2024), the Supreme Court reversed the decision of the Fifth Circuit Court of Appeals. It acknowledged that because excess funds of the Federal Reserve System would go to the Treasury, the funding of the CFPB was subject to the Appropriations Clause. To understand the Appropriations Clause, however, the court delved into the history of the Appropriations Clause, including the practices in England before the American Revolution and appropriations in the post-Revolutionary War period. It explained that the “funding mechanism fits comfortably with the First Congress’ appropriations practice [and] is similar to the First Congress’ lump-sum appropriations.” The Court rejected the argument that because the CFPB determines how much it needs, it is not subject to the appropriations process. In rejecting this argument, the Court pointed to historical practice and the cap that Congress has imposed on the money the CFPB can seek from the Federal Reserve System. Second, the Court rejected the plaintiff’s argument “that the Appropriations Clause requires both Chambers of Congress to periodically agree on an agency’s funding, which ensures that each Chamber reserves the power to unilaterally block those funding measures through inaction.” In this regard, it noted that the first appropriations for the post office and the customs service were not time limited. Moreover, the Court noted, the Constitution only requires that appropriations for the army not be for more than two years and places no other specific limitation on the time-period for appropriations. Accordingly, the plaintiffs could not convince the Court that its comparisons to the post office and the customs service were inappropriate. Third, the plaintiffs argued that if the funding of the CFPB were appropriate, Congress would have no checks on agencies running amuck, but the Court rejected this argument, noting that there were many ways in which Congress could control agency actions.
Justice Jackson and Justice Kagan (joined by Justices Sotomayor, Kavanaugh and Barret) filed separate concurring opinions. Justices Alita and Gorsuch dissented.
By: The Editors