The Supreme Court on Thursday rejected a challenge to the constitutionality of the structure used to fund the Consumer Financial Protection Bureau, the federal agency tasked with enforcing consumer finance laws. By a vote of 7-2, the justices reversed a decision by a federal appeals court in Louisiana, which had ruled that the agency’s funding violates the Constitution because it comes from the Federal Reserve rather than through the congressional appropriations process.
The case was one of several on the court’s docket this term involving the division of authority between the three branches of government, as well as the power of administrative agencies. It began as a challenge by two industry groups to a “payday lending” rule that the agency issued in 2017. A three-judge panel of the U.S. Court of Appeals for the 5th Circuit rejected their argument that the rule violated the federal laws governing administrative agencies.
But the court of appeals agreed with the groups that the agency’s funding structure – which was intended to foster its independence – is inconsistent with Article I, Section 9 of the Constitution, which instructs that “[n]o money shall be withdrawn from the Treasury, but in Consequence of Appropriations made by Law.” In fact, the 5th Circuit concluded, the CFPB’s funding is “double-insulated” from Congress’s power under the appropriations clause, because the agency not only receives its funding from the Federal Reserve, but it (rather than Congress) determines the amount of that funding, by requesting the amount that the CFPB director deems “reasonably necessary to carry out” the bureau’s duties.
In a 22-page opinion joined by Chief Justice John Roberts and Justices Sonia Sotomayor, Elena Kagan, Brett Kavanaugh, Amy Coney Barrett, and Ketanji Brown Jackson, Justice Clarence Thomas explained that when the Constitution was ratified in the late 18th century, “appropriations were understood as a legislative means of authorizing expenditure from a source of public funds for designated purposes.”
That understanding, Thomas continued, is supported by both early English history and early American history in the years leading up to the ratification of the Constitution. And although “appropriations needed to designate particular revenue for identified purposes,” Thomas observed, legislatures in that era otherwise “exercised a wide range of discretion.”
That practice also continued in the years immediately following the ratification of the Constitution, Thomas added – for example, with Congress allocating funding for some purposes up to certain amounts and allowing other federal agencies (such as the Customs Service and the Post Office) to fund themselves through the money that they collected.
The CFPB’s funding scheme falls squarely within this definition of a congressional “appropriation,” Thomas concluded: Congress specified the source – the Federal Reserve – from which the CFPB can draw its funding, and it indicated how the CFPB is supposed to use that funding. The court therefore reversed the 5th Circuit’s decision striking down as unconstitutional the CFPB’s funding mechanism.