The constitutionality of the Consumer Financial Protection Bureau (CFPB)’s funding mechanism is under scrutiny, with the U.S. justices appearing somewhat divided on the issue during Tuesday’s oral argument. The discussion has teetered on the challenges to Congress’s decision to provide funding for the CFPB through the Federal Reserve, as opposed to the typical annual appropriations process.
An earlier ruling by a federal appeals court in Texas stated that the CFPB’s funding structure violates Article I, Section 9 of the Constitution, referred to as the appropriations clause. This clause is the one that states, “no money shall be drawn from the Treasury but in consequence of appropriations made by law.”
The CFPB, established by Congress in the wake of the 2008 financial crisis, receives its funding from the Federal Reserve. The Federal Reserve, in turn, is funded through the fees it charges for the services provided. This structure was set to ensure the agency’s independence from political control.
The funding mechanism was initially challenged by two industry groups, in contest to a 2017 regulation ruling on payday lenders. Although a three-judge panel from the U.S. Court of Appeals for the 5th Circuit concurred with the groups about the funding mechanism’s violation of the appropriations clause, it did not agree with their challenge to the substance of the rule.
U.S. Solicitor General Elizabeth Prelogar, who defended the funding mechanism, noted the lower court’s decision as being the first of its kind, where a court ruled that Congress violated the appropriations clause by enacting a statute to fund an agency.
Arguing on behalf of the industry groups, former solicitor general Noel Francisco, urged the court to enforce limits on Congress’s power over public funds. He referred to this power as one of Congress’s most crucial authority and commented on the otherwise negative effects on the separation of powers between the government branches.
Further discussions ensued during the oral argument over whether there should be any limits on Congress with regard to funding allocation, the role of judges in such matters, and the consequences of upholding the lower court’s decision for other agencies.
Justice Brett Kavanaugh noted that “Congress could change the funding scheme tomorrow and there’s nothing permanent or perpetual about this”, implying that he may hold the decision-making vote in this divided court.
A decision is expected to be delivered by the court on this case sometime next year. For more details on this case, please refer to the full report on the oral argument here.