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Supreme Court Affirms Constitutionality of CFPB Funding

Justices reject conservative-led attack on the Consumer Financial Protection Bureau.

By Susan Frederick  |  May 22, 2024

The U.S. Supreme Court has upheld the constitutionality of the funding mechanism for the Consumer Financial Protection Bureau.

In a 7-2 opinion by Justice Clarence Thomas, the court said the statute that funds the bureau through the Federal Reserve instead of congressional appropriations satisfies the U.S. Constitution’s appropriations clause. The court reasoned in CFPB v. Community Financial Services Association that appropriations need only identify the source of public funds and authorize their expenditure for a designated purpose to pass constitutional muster. In this case, Congress identified the Federal Reserve in statute as the funding source for the bureau, also known as the CFPB.

More than half of the states filed as amici on one side or the other, urging the high court to decide the case quickly to avoid regulatory confusion.

Congress created the CFPB in 2011 to enforce federal consumer financial laws and protect consumers in the financial marketplace. Congress funds most federal agencies through the appropriations process but chose to fund the CFPB through the Federal Reserve to preserve its independence from the political process. The amount of CFPB funding is subject to a statutorily mandated, inflation-based cap.

The CFPB published the Payday Lending Rule in 2017 to protect consumers from predatory lending practices. Specifically, the regulation protects consumers from a lender’s multiple attempts to withdraw funds from their bank accounts, which can lead to additional fees and overdraft charges. Two trade associations representing payday lenders and credit-access businesses challenged the rule, arguing that it is unconstitutional because the CFPB’s funding mechanism is unconstitutional. They argued the bureau’s unique funding structure “usurps Congress’ role in the appropriation of federal funds,” violating the appropriations clause and allowing the executive branch to operate without Congress’ fiscal check on its power.

The District Court ruled in favor of the CPFB; the 5th U.S. Circuit Court of Appeals reversed and ruled in favor of the trade associations. More than half of the states filed as amici on one side or the other, urging the high court to decide the case quickly to avoid regulatory confusion. States supporting the trade associations argued that the court must provide congressional oversight of the CFPB or the bureau’s powers would go unchecked. They also argue that the CFPB’s funding process eliminates the states’ opportunity to “advise and influence.”

States supporting the CFBP argued that if the court vacated the Payday Lending Rule, it would “seriously impair the States’ efforts to combat fraud and abuse in the consumer marketplace.” States work in tandem with the CFPB, which helps states manage consumer protection issues by addressing complaints and “regulating fraudulent and abusive practices, such as when payday lenders seek to move online in attempting to escape state regulation.”

Justices Samuel Alito and Neil Gorsuch dissented.

Susan Frederick is NCSL’s senior federal affairs counsel.

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