Supreme Court Upholds Constitutionality of Consumer Financial Protection Bureau Funding Mechanism.

In Consumer Financial Protection Bureau v. Community Financial Services Association of America, the United States Supreme Court held that the mechanism Congress established to fund the Consumer Financial Protection Bureau complies with the Constitution’s Appropriation Clause.

The Consumer Financial Protection Bureau, created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is the federal agency charged with enforcing consumer financial protection laws. Its funding mechanism is unique. While most federal agencies are funded through the annual congressional appropriations process, the Bureau is not. Instead, in an effort to foster the Bureau’s independence, Congress authorized the Bureau to draw funds from the Federal Reserve System in the amount its Director deems “reasonably necessary” to carry out the Bureau’s duties, subject to a statutory cap. In other words, the Bureau does not need to petition Congress for renewed funding each year.

In 2017, the Bureau promulgated the Payday Lending Rule, aimed at high-interest consumer loans. Several trade associations representing payday lenders challenged the rule on the grounds, among others, that the Bureau’s funding mechanism violates the Appropriations Clause. A majority of the Supreme Court (7-2) rejected that challenge.

The Appropriations Clause mandates that no money can be paid out of the United States Treasury unless it has been appropriated by an act of Congress. “Based on the Constitution’s text, the history against which that text was enacted, and congressional practice immediately following ratification,” the Court concluded that “appropriations need only identify a source of public funds and authorize the expenditure of those funds for designated purposes to satisfy the Appropriations Clause.”

The Court found that the statute that provides for the Bureau’s funding meets these requirements because it authorizes the Bureau to draw funds from a particular source (the Federal Reserve System) in an amount not exceeding a statutory cap, and it specifies the purposes for which the Bureau can use the funds (to pay the expenses of the Bureau in carrying out its duties).

The Court was unpersuaded by the arguments against constitutionality that were advanced by the associations, each of which attempted to impose additional requirements into the meaning of an appropriation made by law – including requirements that Congress determine the precise amount of funding agencies receive and that funding be limited in time.

Now that the constitutionality of the Bureau’s funding mechanism has been resolved, cases that were stayed pending the Court’s decision can advance.


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