The CFPB has told two courts, an Illinois federal district court and the Ninth Circuit, that the Fifth Circuit panel decision holding that the Bureau’s funding mechanism is unconstitutional is “neither controlling nor correct” and “mistaken.” 

The CFPB addressed the panel’s decision in Community Financial Services Association v. CFPB in its response to the Notice of Supplemental Authority filed by TransUnion in the CFPB’s enforcement action against TransUnion in the Illinois court and in a letter to the Ninth Circuit responding to the Notice of Supplemental Authority filed by the defendants in CFPB v Nationwide Biweekly Administration.  (TransUnion and the defendants in Nationwide Biweekly are among the defendants in CFPB enforcement actions that are already attempting to use the Fifth Circuit decision as grounds for dismissal.)  We expect the CFPB to seek to overturn the Fifth Circuit decision by either petitioning the Fifth Circuit for a rehearing en banc or proceeding directly to the Supreme Court with a certiorari petition.  Whichever route the CFPB takes, its responses serve as a preview of the arguments it will likely make in challenging the decision.

Pursuant to the Dodd-Frank Act, the CFPB receives its funding through requests made by the CFPB Director to the Federal Reserve, subject to a cap equal to 12% of the Federal Reserve’s budget, rather than through the Congressional appropriations process. In its decision, the Fifth Circuit panel concluded that the CFPB’s funding mechanism did not satisfy the Appropriations Clause because the CFPB was double-insulated from annual or other time limited appropriations. The panel rejected the CFPB’s argument that the funding mechanism satisfied the Appropriations Clause because it was created pursuant to a law enacted by Congress.  According to the panel, a law alone did not satisfy the Appropriations Clause’s command that “No money shall be drawn from the Treasury, but in Consequence of Appropriations made by law.” (emphasis added).  In the panel’s view, to satisfy the Clause, “an appropriation is required.”

In its enforcement action against TransUnion, the CFPB alleges that TransUnion violated a 2017 consent order with the CFPB.  In its Notice of Supplemental Authority, TransUnion argues that the CFSA decision establishes that the CFPB’s enforcement action must be dismissed because the consent order is invalid as the CFPB “used unappropriated funds to negotiate and prepare it.”  TransUnion also argues that the CFPB “may not expend unappropriated funds prosecuting this suit.” 

In its reply to TransUnion’s notice, the CFPB makes the following key arguments for why the panel’s decision is wrong:

  • There is no case law support for the Fifth Circuit’s conclusion that a statutory authorization does not constitute an appropriation made by law or that Congress violates the Appropriations Cause or separation of powers when it authorizes spending by statute, as it did for the Bureau.
  • The Bureau’s funding is not more insulated from Congressional oversight because it comes from receipts of the Federal Reserve System.  The source of funds makes no difference to Congress’s ability to oversee how the Bureau spends that money to carry out its duties.  And that point does not differentiate the Bureau from the Federal Reserve Board, which like the Bureau is part of the Federal Reserve System and funded from the same source. Congress is capable of overseeing the Bureau’s spending, including because of provisions in Dodd-Frank that ensure its ability to supervise, such as provisions requiring the Bureau to provide regular audits and reports to Congress.
  • The Fifth Circuit’s holding finds no support in the Dodd-Frank provision that states funds transferred to the Bureau “shall not be construed to be Government funds or appropriated monies.”  That provision, like similar provisions that apply to the Farm Credit Administration, Federal Reserve Board, and OCC, determines the degree to which various statutory restrictions apply to the Bureau’s use of funds.  It has nothing to do with the constitutional requirement that Congress authorize the executive to spend money.
  • The Bureau’s funding is not meaningfully different from numerous other agencies such as the Federal Reserve Board, OCC, and FDIC that are funded in ways other than annual spending bills.  The decision leaves no way to know what statutory spending authorizations count, in the panel’s view, as an “appropriation” that complies with the Appropriations Clause.
  • Even if the court were to agree with the Fifth Circuit panel, it should still reject TransUnion’s request to dismiss the complaint because any defect in the Bureau’s funding authorization would not deprive the Bureau of the power to carry out its statutory responsibility to enforce the law.

In the Ninth Circuit case, a California district court imposed a $7.9 million civil penalty against the defendants for allegedly misleading marketing practices but did not award the nearly $74 million in restitution sought by the CFPB.  (The CFPB is seeking in the appeal to have the district court’s denial of restitution reversed.)  In their Notice of Supplemental Authority filed with the Ninth Circuit, the defendants argue that based on the Fifth Circuit’s decision, the Ninth Circuit should reverse the district court’s civil penalty award and dismiss the CFPB’s enforcement action.  In addition to making several of the same arguments it made to the Illinois court, the CFPB also told the Ninth Circuit that the Fifth Circuit decision should not result in a dismissal because:

As to remedy, the panel failed to heed its own understanding of Collins [v. Yellen].  The court didn’t consider whether “the Bureau would have acted differently “but for” its statutory funding mechanism.  Here, applying Collins yields a straightforward answer: the case should not be dismissed because there is no evidence the Bureau “would have acted differently” with different funding.