The Consumer Financial Protection Bureau (CFPB) filed a brief this week with the U.S. Supreme Court contending that its funding source does not violate the appropriations clause of the U.S. Constitution, despite a recent Fifth Circuit Court of Appeals ruling stating otherwise.
With its brief, the CFPB is seeking to overturn the Fifth Circuit’s decision in Community Financial Services Association of America Ltd. v. CFPB, reached late last year. In that decision, the presiding panel of judges ruled that the CFPB’s design violated the Constitution because it received funding from the Federal Reserve and not the appropriations legislation passed by Congress.
In its brief, the CFPB contends that the manner in which it is funded falls under traditional readings of the Constitution’s text, in that an “appropriation” of funding is defined as “simply a law making a particular source of funding available for particular uses,” and that the “Founders knew how to limit Congress’s authority to make appropriations when they wished to do so.”
In the section of the Constitution immediately preceding the Appropriations Clause, there is a provision that limits the appropriation of funding to raise an army to a term of no more than two years.
“Under that separate clause, Alexander Hamilton explained, Congress is not ‘at liberty to vest in the executive department permanent funds for the support of an army’; instead, it is ‘obliged,’ ‘once at least in every two years, to deliberate upon the propriety of keeping a military force on foot,’” the brief states.
The reasoning is similar to a conflicting Second Circuit Court of Appeals ruling made in March that found the CFPB’s constitutionality is valid.
“[T]he CFPB’s funding structure is not constitutionally infirm under either the Appropriations Clause or the non-delegation doctrine,” the Second Circuit ruled in part.
In February, the Supreme Court agreed to hear the case challenging the Bureau’s constitutionality in its next term. While the Biden administration sought to expedite the ruling in its appeal, the Court will instead wait until its new term in October. However, a decision is not expected to be handed down in the case until early 2024 at the earliest.
This marks the latest challenge to the CFPB’s constitutionality. In mid-2020, the Court heard Seila Law LLC v. Consumer Financial Protection Bureau, which asked the Court to determine whether the CFPB’s substantial executive authority violates the Constitutional principle of the separation of powers between the branches of the federal government.
In that case, the Supreme Court ruled that the appointed director of the CFPB is not insulated from being fired by the President of the United States, but stopped short of invalidating the agency’s structure.
This led President Biden to seek the appointment of his own CFPB director after entering office. A similar decision followed from the Supreme Court related to the Federal Housing Finance Agency, which ultimately led to the resignation of the previous administration’s FHFA director and the appointment of current incumbent Sandra Thompson.