U.S. Supreme Court Rejects Existential Threat to Consumer Financial Protection Bureau

“The reports of my death have been greatly exaggerated.” That famous proclamation could just have easily been made by the Consumer Financial Protection Bureau as by Mark Twain.

On May 16, 2024, the U.S. Supreme Court decided CFPB v. Consumer Financial Services Association of America, Ltd., an existential challenge to the entire Consumer Financial Protection Bureau. The respondent had argued that the Bureau’s unique funding structure violates the Appropriations Clause of the Constitution. 

Unlike most agencies, the Bureau is not funded by annual appropriations from Congress. Rather, in the 2010 Dodd-Frank Act, Congress funded the Bureau in perpetuity by allowing it to take up to 12% of the total operating expenses of the Federal Reserve — which itself is funded outside the congressional appropriations process. Further, unlike most agencies, the Bureau is not required to relinquish any unused funds. Since its inception, the Bureau has amassed $340 million in unused funds. The respondents maintained that this novel funding structure unlawfully insulated the Bureau from political accountability and Congress’s power of the purse.

The U.S. Court of Appeals for the Fifth Circuit agreed and vacated the Bureau’s Payday Lending Rule in October 2022. Its reasoning would also have invalidated all Bureau rules, enforcement actions, and other official actions. Recognizing the significance of this threat, federal courts across the country stayed 9 Bureau enforcement actions and 6 petitions to enforce civil investigative demands. Two regulatory challenges to the Bureau’s authority were also stayed pending the Supreme Court’s decision.

In a 7–2 decision, the Supreme Court held that the Bureau’s funding structure meets the minimal requirements imposed by the Appropriations Clause. Justice Clarence Thomas’s opinion for the Court discerned only two basic requirements for a lawful appropriation: that the law (1) “identify a source of public funds” and (2) “authorize the expenditure of those funds for designated purposes.” The Dodd-Frank Act did both. The Court thus reversed the Fifth Circuit’s judgment vacating the CFPB’s Payday Lending Rule. Justice Samuel Alito (joined by Justice Neil Gorsuch) dissented, reasoning that the Appropriations Clause should be understood as a prohibition on a “financially independent” executive, just as Parliament had used the power of the purse to subordinate the English King.  

What Clients Need to Know

• In the next several weeks, federal courts are likely to lift the 17 stays on the Bureau’s enforcement actions and challenges to Bureau rules. Those actions will then proceed apace. This includes the Chamber of Commerce’s closely watched challenge to the Bureau’s rule regarding credit-card penalty fees. 
• The Bureau will likely be emboldened to bring new enforcement actions and finalize pending regulations, including many that have been on hold in light of the many stays across the country and the uncertainty surrounding the CFPB’s structure. As Bureau Director Rohit Chopra put it on Thursday, “The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay …. As we have done since our inception, the CFPB will continue carrying out the vital consumer protection work Congress charged us to perform for the American people.” The Bureau has been planning to increase its number of enforcement attorneys by 50%, and the Court’s decision will make it easier for the Bureau to meet that goal. 
• Justice Thomas’s opinion referenced the possibility that, setting aside the Appropriations Clause, there may be “other constitutional checks on Congress’ authority to create and fund an administrative agency.” These might include the nondelegation doctrine and the Necessary and Proper Clause. Likewise, parties adverse to the Bureau may have statutory defenses and grounds for challenging its actions under the Administrative Procedure Act.