Many people have asked me if the Second Circuit’s opinion in CFPB v. Law Offices of Crystal Moroney, which held that the CFPB’s funding does not violate the Appropriations Clause, changes my mind about how the Supreme Court will rule in CFSA v. CFPB. It is noteworthy that two of the three judges on the Second Circuit panel were appointed by Republican Presidents, including one appointed by President Trump. Also, while the D.C. Circuit had previously concluded that the CFPB’s funding does not violate the Appropriations Clause, the acceptance of the CFPB’s argument by another circuit court in an opinion with a much fuller analysis adds weight to the CFPB’s argument.
Nevertheless, my view is that the Second Circuit’s opinion will not, in itself, materially impact the ultimate outcome in the Supreme Court. Given that the Appropriations Clause issue is one of first impression, there is room for the Supreme Court to create new law in ruling in either side’s favor. It is likely that a majority of the Court (either 5 or 6 of the Republican, conservative Justices) will be strongly inclined to rule in favor of CFSA because of their inherent antipathy towards the “Administrative State” (an agency usurping the power of Congress) and the perception of many that the CFPB is the poster child of the Administrative State (one director with breathtaking power). Also, the Supreme Court, in Seila Law, has already shown antipathy towards the CFPB in particular.
However, a majority of the Court may not be persuaded by the reasoning used by the Fifth Circuit to reach its conclusion in CFSA v. CFPB that the CFPB’s funding is unconstitutional (i.e. the argument that the CFPB is “doubly insulated” from the annual appropriations process because the CFPB receives its funding from the Federal Reserve Board which, in turn, receives its funding from the Federal Reserve Banks and not Congress). As a result, a majority may need to accept a different rationale for concluding that the CFPB’s funding is unconstitutional and will have to deal with the difficult issue of how to distinguish, for purposes of its constitutionality, the CFPB’s funding from the funding of the Federal Reserve Board, the Comptroller of the Currency, the FDIC, as well as other federal agencies funded outside of the annual appropriations process.
In addition, to affirm the Fifth Circuit’s decision that the CFPB’s funding is unconstitutional, a majority of the Court would also have to address whether the remedy invoked by the Fifth Circuit—vacating the CFPB’s payday lending rule—was the proper remedy for an Appropriations Clause violation. As we and others have observed, the question of what is an appropriate remedy in the case has enormous potential implications for all other CFPB rules and as well as the other actions taken by the CFPB over the nearly 12 years since it opened its doors for business.
Despite these issues, I continue to believe that a majority of the Court will conclude that the CFPB’s funding is unconstitutional. I also believe that the Supreme Court will stay its mandate to give Congress an opportunity to rectify the constitutional infirmity, and to deal with the decision’s other ramifications, including its impact on other regulations promulgated and actions taken by the CFPB during its existence. At the end of the day, I expect the CFPB to remain as an agency, but with much less power, and the CFPB regulations on which the industry has relied not to be disturbed. Beyond that, I will not speculate as to what will happen to other actions taken by the CFPB or whether the agency will still be governed by one individual or become a commission composed of three or five individuals. These are all political questions that will need to be resolved by a bipartisan Congress during a presidential election year.