The CFPB has filed its reply brief with the U.S. Supreme Court in Community Financial Services Association of America Ltd. v. CFPB. In the case, CFSA has asked the Supreme Court to affirm the Fifth Circuit panel’s decision which held that the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution. As a remedy for the constitutional violation, the panel vacated the CFPB’s payday lending rule which CFSA challenged in its lawsuit. The CFPB filed its brief defending the constitutionality of its funding with the Supreme Court on May 8, 2023 and CFSA filed its brief asking the Court to affirm the Fifth Circuit panel decision on July 3. The Supreme Court has scheduled oral argument on October 3, 2023.
Numerous amicus briefs have been filed in support of each of the parties. A group of 27 Republican State Attorney Generals who filed an amicus brief in support of CFSA also filed a motion with the Supreme Court asking for leave to participate in oral argument as amicus curiae supporting CFSA. CFSA has filed a response in opposition to the AGs’ motion in which it asserts that “undivided argument would be most appropriate and beneficial for this Court.” The Supreme Court has not yet ruled on the motion.
In its reply brief, the CFPB makes the following principal arguments:
- The Appropriations Clause does not require Congress to specify the precise dollar amount to be spent. Beginning with the Founders and continuing into the 1900s, Congress has made standing uncapped appropriations for agencies that include the Office of the Comptroller of the Currency (OCC) and Federal Reserve Board (FRB). Congress satisfied any dollar amount requirement by specifying a cap on the CFPB’s funding. The CFPB does not have unilateral authority to self-determine the amount of its funding as charged by CFSA. Rather the only discretion that the CFPB has is to request less than the congressionally-determined amount.
- Congress did not impermissibly cede its appropriations power to the CFPB by not setting a temporal limit on the CFPB’s appropriation as charged by CFSA. The Appropriations Clause does not restrict Congress’s authority to choose the duration of the “Appropriations” it makes “by Law.” Congress could repeal or revise the CFPB’s funding mechanism at any time—something it has repeatedly done with other standing appropriations.
- The CFPB’s funding mechanism is far from novel. The agencies from which the CFPB inherited most of its authorities (the OCC, FRB, and FDIC) have standing sources of uncapped funding, larger budgets, and significant regulatory and enforcement authority. Both the FRB and CFPB are funded from the “earnings of the Federal Reserve System.” While CFSA argues that the Federal Reserve System is sui generis due to its hybrid private-public status. CFSA’s argument conflates the FRB with the Federal Reserve System. The FRB is an agency exercising executive powers that include regulating banks and financial holding companies. In contrast, the Federal Reserve System encompasses the public-private Federal Reserve Banks. The Federal Reserve System’s hybrid nature does not change the FRB’s status as an executive agency with a funding mechanism that largely mirrors the CFPB’s.
- With respect to CFSA’s attempt to distinguish the CFPB on the ground that unlike the CFPB, the OCC, FRB, and FDIC are funded through fees or assessments and thus subject to market constraints, CFSA’s market-constraint theory is conceptually flawed and descriptively inaccurate. The purpose of the Appropriations Clause is to assure that public funds will be spent as decided by Congress and that purpose is fulfilled when Congress passes a law funding an agency and the agency spends the funding in accordance with that law. Nothing in the Clause’s text or history suggests any concern with whether an agency’s funding is sufficiently constrained by the private parties regulated by the agency. Also, the CFSA’s market-constraint theory relies almost exclusively on the practice of bank “charter shopping,” which affects only the OCC and not the FRB or FDIC. The theory also does not account for the FRB which funds its expenses through assessments that are not levied on private parties but on Federal Reserve Banks who do not have the option to exit the market in response to FRB regulations they disfavor.
- Vacating the payday lending rule would not be a proper remedy. In addition to CFSA having failed to show that an Appropriations Clause violation could not be cured by severing portions of the funding provision, CFSA has not shown that it is entitled to retrospective relief. While a valid appropriation is a precondition to every expenditure of federal funds, it does not follow that an executive action carried out using unappropriated funds is itself unconstitutional or must necessarily be treated as a nullity. Any lack of properly appropriated funds did not deprive the CFPB Director of the power to promulgate the rule.
- A decision invalidating the CFPB’s past actions would be deeply destabilizing. Even if, as suggested by CFSA, defenses such as laches and statutes of limitation would prevail in some cases, the widespread uncertainty about the validity of the CFPB’s past actions would be profoundly disruptive.