Skip to main content

Supreme Court Hears Arguments in Case That Could Stymie Consumer Watchdog

The challengers argue the way Congress funded the Consumer Financial Protection Bureau is unconstitutional.

By Susan Frederick  |  October 5, 2023

The U.S. Supreme Court heard arguments Tuesday in a case involving funding for the Consumer Financial Protection Bureau, or CFPB. The case, Consumer Financial Protection Bureau v. Community Financial Services Association of America Ltd., began when a group of payday lenders challenged the validity of the CFPB’s 2017 Payday Lending Rule as arbitrary and capricious and outside of the bureau’s statutory authority.

The rule barred lenders from making additional efforts to withdraw payments from borrowers’ bank accounts after two consecutive failed attempts due to a lack of funds.

The payday lenders claim the CFPB’s funding structure is unconstitutional because it does not receive its funding through a congressional appropriation in violation of the appropriations clause of the U. S. Constitution. They argue that for the CFPB’s funding structure to be constitutional, Congress must set the actual amount of an agency’s appropriation and that appropriation must have a set duration.

Agency Born in Response to Crisis

Congress created the CFPB as an independent federal agency in 2010 in response to the 2008 financial crisis. Its job is to enforce federal consumer financial laws, to protect consumers in the marketplace and to ensure that consumer financial products are “fair, transparent and competitive.” Two of the CFPB’s core functions are to eliminate deceptive or abusive actions or practices through its rulemaking powers and to enforce federal anti-discrimination laws. The CFPB is funded by the Federal Reserve, which receives its funding through fees from depositors. Congress placed a cap of $600 million on the CFPB’s funding, which it cannot exceed, and the bureau’s director determines how much of the $600 million the CFPB needs to carry out its specific mandates in a given fiscal year.

The appropriations clause gives Congress the power of the purse to limit the executive branch’s spending powers. The Supreme Court has interpreted the appropriations clause to mean that “no money can be paid out of the Treasury unless it has been appropriated by an act of Congress.” (Cincinnati Soap Co. v. U.S. 301 U.S. 308; 1937) This case will turn on the Supreme Court’s interpretation of the clause and how it defines what constitutes an appropriation.

The 5th Circuit Court of Appeals vacated the Payday Lending rule based on what it deemed to be the CFPB’s unconstitutional funding structure. The appeals court held that because the CFPB does not receive its funding through the annual congressional appropriations process, and Congress does not determine the actual amount of CFPB funding, it is “double-insulated” from congressional power and oversight. It ruled that Congress relinquished its constitutional power of appropriations and created an unconstitutional funding structure which “violates the Appropriations Clause of the Constitution and the separation of powers principles enshrined in it.” The 5th Circuit further reasoned that because the CFPB promulgated the Payday Lending Rule while receiving funding though an unconstitutional funding structure, the rule must be vacated.

The CFPB argues that it is ultimately accountable to Congress because Congress capped the amount of annual funding the bureau could receive from the Federal Reserve at $600 million, and those funds can be used only for specific purposes set forth in the CFPB’s enabling legislation. It also argued that the 5th Circuit’s ruling was based on an erroneous understanding of the appropriations clause because the clause places limits on the executive branch’s ability to disburse funds but does not limit the manner in which Congress chooses to make appropriations. Congress can choose to make a standing appropriation, as it has done with the CFPB, and it is not “double-insulated” from Congress because Congress can pass a statute changing how the CFBP is funded and how much funding it receives. The CFPB points to other instances dating back to the nation’s founding where Congress has given authority to the executive branch to fund certain federal entities through fees and assessments, such as the U.S. Post Office and mint in 1792, and the U.S. Patent Office in 1836. Finally, the CFBP argues that no court has ever held that Congress violated the appropriations clause by enacting a statute providing funding, and that invalidating the Payday Lending Rule would impose “significant disruption on the nation’s economy and the consumers, financial institutions, regulators, and others who have reasonably relied on the CFPB’s past actions.”

This case has divided the states. New York, joined by 22 states and Washington, D.C., filed as amici in the case, saying that vacating the Payday Lending Rule would “put at risk many other regulatory actions taken by the CFPB during the period when it was receiving allegedly unconstitutional funding.” West Virginia, joined by 26 other states, also filed an amicus brief arguing that “sidelining Congress can greenlight an agency to wreak havoc… Courts must ensure that Congress keeps a firm grasp on the purse strings.”

Stay tuned for the court’s decision later in the term.

Susan Frederick is NCSL’s senior federal affairs counsel.

  • Contact NCSL

  • For more information on this topic, use this form to reach NCSL staff.