Is There a Future for the CFPB?

The Supreme Court is set to rule this term on the constitutionality of funding for the Consumer Financial Protection Bureau (CFPB), in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited, and the future of the agency may be at stake.

The CFPB was formed by Congress in the wake of the 2008 financial crisis. The Bureau falls within the Federal Reserve System and is empowered to regulate certain consumer financial products and services. This is not the first time the constitutionality of the CFPB has been challenged, with the Supreme Court striking down a provision of the enabling statute that insulated its director from removal by the president in 2020 in Seila Law LLC v. Consumer Financial Protection Bureau. This time, the agency’s challengers have argued that the funding mechanism for the CFPB is unconstitutional.

Rather than receiving annual appropriations directly from Congress, the enabling statute instead provides that the CFPB shall be funded from the earnings of the Federal Reserve System, up to a specified capped amount. The entities challenging the law are two payday lenders who are subject to CFPB regulations. They argue the enabling statute violates the Appropriations Clause of the Constitution (Article I, Section 9, Clause 7), which provides that “no Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.” The challengers also argued that the “Payday Lending Rule” to which they were subject fell outside the statutory purview of the CFPB.

The Fifth Circuit Court of Appeals agreed with the challengers on the first point, and disagreed on the second, finding that the Payday Lending Rule fell within the CFPB’s statutory authority, but holding that “”the Bureau’s funding structure violates the Appropriations Clause of the Constitution and the separation of powers principles enshrined in it.” The CFPB appealed.

The Supreme Court heard oral argument on October 3, 2023. While it is often risky to make prognostications from oral argument – in front of the Supreme Court or in any other court – it appears the CFPB’s challengers have an uphill battle. While Chief Justice Roberts along with Justices Thomas, Alito, and Gorsuch – who have often been skeptical of broad agency powers – asked questions suggesting a concern for the CFPB’s funding mechanism, Justices Sotomayor, Kagan, and Jackson expressed concern for judicial overstep if courts were tasked with policing the form by which Congress appropriates funds. Justice Kagan noted that under the challengers’ view of the Appropriations Clause, the funding for the Federal Reserve would be unconstitutional.

If the challengers’ argument that “perpetual” funding by Congress is unconstitutional, then other federal programs, such as Medicare, Medicaid, and Social Security, may be at risk. The ultimate decision may rest on Justice Kavanaugh – who seemed skeptical of the argument that CFPB funding was “perpetual,” noting that “Congress could change it tomorrow” – and Justice Barrett, who expressed that she was “struggling to figure out” what standard the challengers wanted the Court to use.

If the Supreme Court agrees with the Fifth Circuit and holds the funding structure of the CFPB unconstitutional, there is also a question of what that means in practice. The challengers argued that the funding provisions could not be excised from the enabling statute and the entire law would need to be stricken. The CFPB noted that such a ruling would be a profound disruption on the economy.

A decision is expected this term, which generally means by the end of June 2024, but could come earlier.


Fitch Law Partners LLP reports news and insights on complex litigation topics. Clients, colleagues and friends may receive The Fitch Briefs by signing up here.