Justices Hold Consumer Protection Agency’s Funding Is Constitutional

WASHINGTON — The Supreme Court on Thursday rejected a constitutional challenge to the Consumer Financial Protection Bureau, ruling the mechanism used to fund the agency does not violate the appropriations clause.

The decision, by a 7-2 vote, ended what many considered the most dangerous legal challenge to the authority of the consumer protection agency since it was established in the wake of the 2008 financial crisis.

Writing for the court majority, Justice Clarence Thomas said, “under the appropriations clause, an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes.”

He continued: “The statute that provides the bureau’s funding meets these requirements. We therefore conclude that the bureau’s funding mechanism does not violate the appropriations clause.”

In a concurring opinion, Justice Elena Kagan, joined by Justices Sonia Sotomayor, Brett Kavanaugh and Amy Coney Barrett, said historical precedent demanded deciding the case in favor of the agency.

“Whether or not the CFPB’s mechanism has an exact replica, its essentials are nothing new,” Kagan wrote. 

“It was devised more than two centuries into an unbroken congressional practice, beginning at the beginning, of innovation and adaptation in appropriating funds,” she continued. “The way our government has actually worked, over our entire experience, thus provides another reason to uphold Congress’ decision about how to fund the CFPB.”

In dissent, Justice Samuel Alito Jr. joined by Justice Neil Gorsuch, wrote that when Congress devised how the agency would be funded, it deliberately sought to “shield its creation … to impede congressional oversight.”

“The framers would be shocked, even horrified, by this scheme,” he said.

Later, Alito summed up his outrage at what he described as the agency’s “unprecedented combination of funding features” by saying it “affords it the very kind of financial independence that the appropriations clause was designed to prevent.”

He added: “It is not an exaggeration to say that the CFPB enjoys a degree of financial autonomy that a Stuart king would envy.”

The Consumer Financial Protection Bureau was created as part of the 2010 Dodd-Frank Act, and it is not funded by an annual appropriation from Congress. This allows it to draw resources it needs, up to an annual cap, from the Federal Reserve System.

Particularly irksome to Alito is the fact that, unlike most agencies, the agency does not have to return any unspent funds to the U.S. Treasury. Instead, it may invest or roll over any unspent money into a separate fund, which it may use in the future.

As of Sept. 30, 2022, Alito wrote, “the CFPB had built up an endowment worth nearly $340 million.”

Republicans and a number of business trade groups have long contended that such perks bestow almost unlimited power upon the agency.

The bureau’s supporters meanwhile worried that a ruling against the agency by the justices would call into question every regulation it had imposed and enforcement action it had taken over the past 13 years.

And they had sound reason to worry. In 2020, the justices struck down a different part of the Dodd-Frank Act, holding that it effectively shielded the bureau’s director from presidential oversight.

Among those who seemed to cheer loudest in favor of the court’s decision Thursday was President Joe Biden, who called the ruling “an unmistakable win for American consumers.”

“Since President Obama and I created it in the wake of the Great Recession, the Consumer Financial Protection Bureau has worked to protect consumers from abusive practices by lenders, servicers and special interests, and has lowered costs for hard-working families by going after junk fees,” Biden said. 

“Under my administration, the CFPB has delivered: providing nearly $9 billion in consumer relief and working to save consumers $20 billion per year going forward on credit card late fees, overdraft fees and other junk fees,” he continued.

“Every step of the way, while the CFPB and I have fought for the middle class, Republicans in Congress and in states across the country have stood with special interests who want to keep ripping families off,” Biden said.

“In the face of years of attacks from extreme Republicans and special interests, the court made clear that the CFPB’s funding authority is constitutional and that its strong record of consumer protection will not be undone,” he said.

Rep. Steny Hoyer, D-Md., also released a statement in which he said, “the Consumer Financial Protection Bureau’s ability to defend the American people from the same types of predatory financial practices that led to the Great Recession has always depended on the bureau’s independence from partisan politics. 

“I am pleased that the Supreme Court’s 7-2 decision, written by Justice Thomas, upheld the CFPB’s independent funding structure through the Federal Reserve as constitutional,” he said. “Incorporating the CFPB into the standard appropriations process, contrary to Congress’ intent when establishing the bureau, would have allowed Republicans to undermine the bureau’s ability to stand up for the American people by cutting or eliminating its funding on a whim.”

In the wake of the justices’ decision Thursday, a government watchdog group, Accountable.US, called for the immediate dismissal of all lawsuits in lower federal courts against CFPB enforcement actions and new regulations that cited the lawsuit decided today as their basis for rejecting the CFPB’s independence and authority. 

“This lawsuit brought by predatory lenders was only ever about one thing: taking out the best line of defense consumers have against financial industry scams, price-gouging and abuse,” said Accountable.US President Caroline Ciccone in a written statement. 

“The reason the Consumer Financial Protection Bureau is so effective at making wronged consumers whole is because of its independence, which is why shady industry CEOs and lawmakers in their pocket wanted to jam up the agency’s funding with politics and lobbyist money,” Ciccone continued. “Now that the CFPB’s funding structure is settled law, every lawsuit clogging up courtrooms with challenges to the agency’s enforcement authority and cost-lowering rules hinging on the outcome of the predatory lenders’ case must be immediately tossed out. 

“The legal system must allow the Consumer Financial Protection Bureau to fully do its job protecting consumers and lowering costs — and conservatives in Congress should finally get over their obsession with letting Wall Street prey on Main Street to make a quick buck,” she said.

Thursday’s ruling was the first of three cases heard this term that revolved around challenges to agency authority.

Still pending are decisions in a case challenging the constitutionality of the Securities and Exchange Commission holding administrative tribunals, and perhaps most watched of all, a case involving the high court’s long-standing Chevron doctrine, which requires federal courts to defer to agencies’ “reasonable” interpretations of ambiguous statutes.

If the doctrine, which gets its name from a 1984 decision, Chevron v. Natural Resources Defense Council, were to be overturned, it would be a major, major development as Chevron is one of the most frequently cited cases in all of American jurisprudence. 

Dan can be reached at [email protected] and @DanMcCue