Community Financial Services Association of America (CFSA) has filed its brief with the U.S. Supreme Court in which it asks the Court to affirm the Fifth Circuit panel decision in CFSA v. CFPB.  In that decision, the panel held the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution and, as a remedy for the constitutional violation, vacated the CFPB’s payday lending rule (Payday Rule).  The CFPB filed its brief with the Supreme Court defending the constitutionality of the Bureau’s funding in May 2023.

In its brief, CFSA makes the following principal arguments:

  • The Appropriations Clause states that “[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.”  The CFPB can directly requisition from the Federal Reserve Board “the amount determined by the Director to be reasonably necessary to carry out” the CFPB’s functions each year, subject to the statutory cap.  As the CFPB rather than Congress decides the amount of its annual funding, the funds are not “drawn…in Consequence of Appropriations made by Law.”  At the Founding, an appropriation was a specific sum.  The only “appropriation” that determines the “sum” that the CFPB takes each year is made by the CFPB itself, not Congress.  The statutory cap is an illusory limit on the CFPB’s ability to decide how much funding to request because the CFPB’s self-assessed needs have never reached the cap.  In addition, the CFPB can roll over indefinitely any funds it draws from the Board but does not expend.
  • Congress ceded its appropriations power to the CFPB without any temporal limit. Instead of both chambers of Congress needing to periodically agree to fund the CFPB, the CFPB can set its own funding in perpetuity unless both chambers agree and can persuade or override the President. The CFPB’s financial freedom from Congress creates the possibility for the CFPB to exercise its extensive authorities without Congressional control. 
  • The  CFPB has argued that the historical and modern meaning of a congressional “appropriation” is “simply a law making a particular source of funding available for particular uses.”  According to CFSA, the Appropriations Clause, at a minimum, requires Congress to determine the total amount of funding itself rather than allowing the Executive Branch to choose an amount that it deems “reasonably necessary.”  Section 5497 of Dodd-Frank, which established the CFPB’s funding mechanism, is not a “law” for purposes of the Appropriations Clause because it represents an impermissible delegation of Congress’s legislative powers.
  • The CFPB has argued that its reading of the Appropriations Clause’s text is reinforced by longstanding practice, including Congress’s use of fees, assessments, investments, and other similar sources to fund various agencies that include the OCC, FDIC, and Federal Reserve Board.  According to CFSA, in contrast to the CFPB’s funding, the use of assessments to fund these agencies preserves some level of political accountability for these agencies “because they must consider the risk of losing funding if entities exit their regulatory sphere due to imprudent regulation.”  With regard to the Federal Reserve Board, CFSA notes that its primary functions “are not quintessential executive powers, or even inherently governmental ones.  The Board implements monetary policy mainly through traditional banking activities, such as loaning money and directing open-market transactions.”  Because of its sweeping powers and unaccountable funding, the CFPB is not remotely comparable to traditional agencies funded by fees or assessments. 
  • The CFPB argues that even if its funding mechanism is constitutionally flawed, pursuant to Dodd-Frank’s severability clause, the Fifth Circuit should have conducted a severability analysis of Section 5497 to determine which of its provisions causes the constitutional violation.  CFSA argues that the fundamental flaws in Section 5497 cannot be severed, for reasons that include that the Court cannot “re-write” the statute by, for example, replacing the CFPB’s funding mechanism with either a specific sum or assessments from regulated entities.
  • The CFPB also argues that even if its funding mechanism is unconstitutional, vacatur of the Payday Rule was not the appropriate remedy.  CFSA argues that the CFPB’s lack of a valid appropriation meant that it did not lawfully have the power to promulgate the Payday Rule because a valid appropriation was a necessary condition to its rulemaking.  It argues that it is not necessary for the Court to decide whether the Administrative Procedure Act’s (APA) mandate that a court shall “set aside” unconstitutional agency action requires a court to vacate an invalid regulation.  According to CFSA, the APA, at a minimum, means the CFPB cannot enforce the Rule against the plaintiffs.
  • The CFPB argues that vacating the CFPB’s past actions would inflict significant disruption on the Nation’s economy and consumers, financial institutions, and others who have reasonably relied on the CFPB’s past actions.  CFSA calls the CFPB’s argument “fear-mongering” and “sky-may-fall rhetoric.”  According to CFSA, no harm would result from setting aside the Payday Rule because it has never gone into effect and no one has reasonably relied on it.  With respect to the effect of a decision in favor of CFSA on other Bureau actions, CFSA argues that only “timely” claims could lead to relief in past adjudications, and if Congress chooses to appropriate funds for the CFPB, it can simultaneously choose to legislatively ratify any existing CFPB rules.  CFSA notes that many of the CFPB’s rules, including substantial portions of the mortgage-related disclosure rules, were issued outside of the six-year limitations period in 28 U.S.C. Sec. 2401(a) for bringing lawsuits against the federal government, and that equitable defenses such as laches would be available for timely challenges.

The CFPB must file its reply brief by August 2 and any amicus briefs in support of the CFSA must be filed by July 10. 

Our Consumer Finance Monitor Podcast has already devoted two episodes to this case.  In January 2023, we released a two-part episode, “How the U.S. Supreme Court will decide the threat to the CFPB’s funding and structure,” in which our special guest was Adam J. White, a renowned expert on separation of powers and the Appropriations Clause.  To listen to the episode, click here for Part I and click here for Part II.  In May 2023, we released a second episode, “CFSA v. CFPB moves to U.S. Supreme Court: a closer look at the constitutional challenge to the Consumer Financial Protection Bureau’s funding,” in which our special guest was GianCarlo Canaparo, Senior Legal Fellow in the Heritage Foundation’s Edwin Meese III Center for Legal and Judicial Studies.  To listen to the second episode, click here.