Consumer Finance Litigation

Last Thursday, the Supreme Court upheld the Congressional funding mechanism used to fund the Consumer Financial Protection Bureau (CFPB), overruling a Fifth Circuit decision that found the funding mechanism violated the Constitution’s Appropriations Clause. Cons. Fin. Prot. Bureau et al. v. Cmty. Fin. Servs. Ass. of Am., Ltd., 601 U. S. ____ (2024). In an apparent break from recent decisions limiting certain agency’s powers, the Court held that the CFPB’s standing source of funding was constitutional even though such funding is outside the annual appropriations.

The statutory provision which funds the CFPB provides that the CFPB may requisition from the earnings of the Federal Reserve System the amount determined by the CFPB’s Director to be reasonably necessary to carry out its duties, subject only to a statutory cap equal to twelve percent of the Federal Reserve’s total operating expenses (as reported in fiscal year 2009 and adjusted for inflation).

Despite the lack of a need to undergo annual appropriations and the ability of the CFPB to retain and invest unused funds, the Court held that such funding did not violate the Appropriations Clause. The Court held that a valid appropriation needs to only identify a source of public funds and authorize the expenditure of those funds for designated purposes. Using this “source and purpose” framework, the Court noted that similar appropriations of “sums not exceeding” a certain amount had been authorized by Congress since the first Congressional Congress and had also been authorized by the Colonies before the Constitutional Convention.

The Court ultimately held that the CFPB’s funding statute contained enough specificity to satisfy the Appropriations Clause since it identified a public source—the combined earnings of the Federal Reserve—and identified a specific purpose—to pay the expenses of the Bureau in carrying out its duties and responsibilities. 

In so holding, the Court rejected three arguments presented by several trade associations representing payday lenders and other credit-access businesses that challenged the constitutionality of the CFPB’s funding mechanism. The Court rejected the first argument—that there is no limit in the amount of annual funding the CFPB may draw—by stating that the statutory cap of twelve percent of the total operating expenses of the Federal Reserve was a sufficient limitation considering Congress’s prior “sums not exceeding” appropriations. Thus, the statutory provision permitting the CFPB to draw funding up to the twelve percent cap was constitutional.

The Court similarly rejected the second argument—there is no time limit on the CFPB’s funding and that the Appropriations Clause requires Congress to periodically re-authorize an agency’s funding—stating that Congress has the power to make standing appropriations. The Court noted the only constitutional time limitation for appropriations involves the support of an army—no appropriation to support an army shall be for more than two years. The Court also noted that Congress previously supplied funding to the Customs Service and Post Office for unlimited amounts of time. In rejecting the second argument, the Court stated that Congress has the power to supply funding that is not time-limited.

Finally, in rejecting the third argument—that an appropriation such as the one funding the CFPB allows the Executive Branch to operate without any fiscal check—the Court noted that Congressional appropriations need not only meet the constitutional requirements in the Appropriations Clause but must also be authorized by law. The Court stated that the Appropriations Clause grants Congress the power to make appropriations only when there is a law that authorizes the disbursement of specific funds for identified purposes. Since the statute funding the CFPB authorizes the disbursement of specific funds for identified purposes, the appropriation was validly authorized by law.

The Court ultimately held that the statute providing funding to the CFPB met the source and purpose test since it authorizes the Bureau to draw money from the combined earnings of the Federal Reserve (source) to carry out its duties (purpose).