The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) is an entity that Congress created in the wake of the 2008 recession. In creating it, Congress aimed to develop “an independent financial regulator within the Federal Reserve System.” Because Congress wanted to keep the CFPB somewhat removed from direct political power, it allowed the Bureau to obtain its funding from the Federal Reserve System instead of directly approaching Congress each year for money. The amount the Bureau requests from the Federal Reserve System each year is “‘the amount determined by the [Bureau’s] Director to be reasonably necessary to carry out’ its duties.” However, there is a limit to the amount that the Bureau can request; a cap is set at 12% of the Federal Reserve’s 2009 operating expenses. In 2017, some financial associations in Texas challenged the constitutionality of the CFPB’s funding mechanism, arguing it violated the Appropriations Clause. The Supreme Court of the United States granted certiorari to address the issue.
In Consumer Financial Protection Bureau v. Community Financial Services Association of America, Ltd., 601 U.S. 416 (2024), the Supreme Court held that the CFPB’s funding mechanism does not violate the Appropriations Clause of the Constitution. The Court began its analysis by discussing what an appropriation is, defining it as “simply a law that authorizes expenditures from a specified source of public money for designated purposes.” The Court then applies this definition, explaining that Congress created the CFPB by law, giving it the authority to withdraw funds (from the Federal Reserve System subject to a cap), and directed it to use the money to “pay the expenses of the Bureau in carrying out its duties and responsibilities.”
While it is clear that this funding mechanism, on its face, meets the definition of the Appropriations Clause, the financial associations argued that the appropriation still violates the Constitution because: (1) there are no time restrictions on the appropriation; (2) the Bureau determines the amount of funds it withdraws; and (3) the funding violates the separation of powers doctrine. However, the Court looked to the history of appropriations, beginning with the founding fathers, and found that history does not support the associations’ constitutional concerns. The Court discussed an instance where an appropriation was given with a time constraint, which was the funding of the army for a two-year period during wartime. It explained that Alexander Hamilton supported this singular time constraint but did not force any other constraints on other appropriations. In fact, the Court discussed that the First Congress was aware of the ability to impose a time-constraint on appropriations yet chose not to do so. All appropriations made since that time have been subject to this same discretion of Congress, and the Court held that a time restraint is not a pre-requisite to establishing constitutionality when granting an appropriation. Next, the Court discussed the CFPB’s ability to determine the amount of funds withdrawn. To this point, the Court stated that the Bureau does not have broad discretion to choose any amount of funds it may desire, but rather, merely has the “discretion to draw less than the statutory cap.” Finally, the Court addressed the concern of separation of powers. The Court explained that there is much more to Congress’s power of the purse than the Appropriations Clause alone. Additionally, the Court explained that the Clause is a limit, instead of a broad power that Congress is giving away. At the end of the day, Congress still must pass a law allowing agencies to obtain federal funding, exactly as the Constitution intended.
In short, the Supreme Court examined the extensive history surrounding the creation of the Appropriations Clause, how the founding fathers intended the government to use it, and the ways in which Congress used and continues to use the Clause. This examination allowed the Court to clarify the meaning of an “appropriation” and determined that the CFPB’s funding mechanism fell within those constitutional bounds.
By Maycee Redfearn, [email protected]
Edited By Ashley Boyce, [email protected]
Edited By Hayden Mariott, [email protected]