Supreme Court hasn't decided yet to take CFPB constitutionality case

The Supreme Court has not yet agreed to hear a challenge to the funding structure of the Consumer Financial Protection Bureau, though the high court could still take the case this term or next.

The Supreme Court on Tuesday did not list the case — Community Financial Services Association of America v. CFPB — among the cases it intended to hear in the current session, but it may still take the case next week or at any time, experts said. The court regularly releases a list of cases each Monday. But it also may issue individual "miscellaneous" orders at any time.

The CFPB case is being closely watched for its impact on not only the agency's own funding structure but those of other regulatory agencies as well. The case also threatens to undo all of the bureau's past actions and rules, depending on how sweeping the Supreme Court's decision ultimately would be if it were to take the case.

In November, the CFPB petitioned the court to review an appellate decision that the bureau's funding through the Federal Reserve Board violates the appropriations clause. A three-judge panel of the U.S. Court of Appeals for the 5th Circuit had ruled in October that the CFPB's funding contravenes the Constitution's separation of powers. The three judges, all appointees of President Donald Trump, found that Congress had ceded its own "power of the purse" by funding the CFPB outside congressional appropriations, even if the funding was authorized by statute.

The CFPB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which structured the bureau as an independent agency within the Fed. The CFPB's budget is drawn from the Fed and capped at up to 12% of the central bank's operating expenses. In 2022, the agency's maximum budget was $734 million.

Few experts think the Supreme Court will abolish the CFPB outright. But the 5th Circuit's ruling opened the door for the bureau's 12-year history of rules and enforcement actions to be challenged. Many experts think any Supreme Court decision will lead to a fight in Congress over the CFPB's future funding. Though some banks and financial institutions want the CFPB to be abolished outright, many others are hoping for a ruling that would force Democratic lawmakers to bow to reforms, including funding the agency through congressional appropriations and adopting a commission structure. 

The CFPB argued in its petition that many agencies including the U.S. Postal Service and U.S. Mint are funded from sources other than annual appropriations. Prudential regulators — including the Office of Comptroller of the Currency and Federal Deposit Insurance Corp. — are funded through fees or assessments imposed on financial firms, while the Fed is funded through its own open market operations. When Dodd-Frank was being written, financial firms objected to the CFPB being funded through fees or assessments, experts said.

"No other court has ever held that Congress violated the appropriations clause by passing a statute authorizing spending," the CFPB said in its petition. The bureau is being represented by U.S. Solicitor General Elizabeth B. Prelogar. The CFPB also said a ruling against it "threatens to inflict immense legal and practical harms on the CFPB, consumers and the nation's financial sector."

The Supreme Court already ruled on the CFPB's constitutionality once. In a 5-4 decision written by Chief Justice John Roberts, the court in 2020 ruled that the CFPB's single director could not be shielded from being fired by the president and could be fired without cause. The practical effect of that ruling was limited. The court simply struck down the words "for cause" in a provision of Dodd-Frank, and the bureau continued to operate as it had before. 

The implications of the current case are less clear, experts say. The Supreme Court has become highly skeptical of administrative agencies and increasingly has sought to assert its power over the other two branches of government, research shows. 

Republican lawmakers have long pushed for the bureau to be reconstituted as a commission. Republicans have proposed more than 70 bills in the past decade — all without success — seeking to limit the CFPB's authority. The bureau has become so politicized that it is unclear if Democrats would support a commission structure or if Republicans would provide funding through appropriations, experts said, potentially leaving the agency in limbo. 

Politics and policy

Can the Supreme Court distinguish the CFPB's funding from other agencies'?

Many experts think the Consumer Financial Protection Bureau's funding through the Federal Reserve could be the fatal flaw in the Dodd-Frank Act that created the agency, but differentiating the CFPB's structure from others may be tricky.

By Kate Berry

December 15

The 5th Circuit's ruling last year struck down the CFPB's 2017 payday lending rule, which many experts think will never take effect. Two payday trade groups had sued the CFPB in 2018 using various arguments including that the CFPB''s funding violated the appropriations clause. 

The CFPB continues to face legal challenges citing its funding as unconstitutional. Last year, bank trade groups and the U.S. Chamber of Commerce filed a 116-page lawsuit challenging the bureau's authority to adopt a policy that for the first time claimed discrimination on the basis of age, race or sex — regardless of intent — violates the federal prohibition on "unfair, deceptive or abusive acts or practices," or UDAAP. 

"The CFPB relies on this unconstitutional funding scheme to carry out its overly expansive UDAAP authority to plaintiffs' detriment," the groups said.