Above is a link to the unanimous Opinion of the Court in *Community Financial Services Association of America, Limited; Consumer Service Alliance of Texas, Plaintiffs—Appellants, versus Consumer Financial Protection Bureau; Rohit Chopra, in his official capacity as Director, Consumer Financial Protection Bureau, Defendants—Appellees.
I should note that all three Judges on the panel are Trump appointees.
The panel held for the Defendant/Appellees on three of four issues.
It is the fourth issue with which the panel not only held for the Plaintiffs/Appellants, but essentially wiped out the CFPB in the process.
The fourth issue is the unique funding structure of the CFPB. It receives no appropriated funds from the Treasury. Instead, it is statutorily authorized to fund itself by requests to the Federal Reserve, though the amount that can be requested is limited by the authorizing statute.
The court found this funding method unconstitutional and thus struck down the entire statute and agency as unconstitutional.
The relevant portion of the Opinion of the Court begins at page 23 of the document.
I have quoted an extensive portion of the Opinion that defines the issue.
Most anomalous is the Bureau’s self-actualizing, perpetual funding mechanism. While the great majority of executive agencies rely on annual appropriations for funding, the Bureau does not. See 12 U.S.C. § 5497(a). Instead, each year, the Bureau simply requisitions from the Federal Reserve an amount “determined by the Director to be reasonably necessary to carry out” the Bureau’s functions.11 Id. The Federal Reserve must grant that request so long as it does not exceed 12% of the Federal Reserve’s “total operating expenses.” 12 U.S.C. § 5497(a)(1)–(2).12 The funds siphoned by the Bureau, in effect, reduce amounts that would otherwise flow to the general fund of the Treasury, as the Federal Reserve is required to remit surplus funds in excess of a limit set by Congress. See 12 U.S.C. § 289(a)(3)(B).
The Bureau thus “receives funding directly from the Federal Reserve, which is itself outside the appropriations process through bank assessments.” Seila Law, 140 S. Ct. at 2194; see 12 U.S.C. § 5497(a).13 So Congress did not merely cede direct control over the Bureau’s budget by insulating it from annual or other time limited appropriations. It also ceded indirect control by providing that the Bureau’s self-determined funding be drawn from a source that is itself outside the appropriations process—a double insulation from Congress’s purse strings that is “unprecedented” across the government. All Am. Check Cashing, 33 F.4th at 225 (Jones, J., concurring). And where the Federal Reserve at least remains tethered to the Treasury by the requirement that it remit funds above a statutory limit, Congress cut that tether for the Bureau, such that the Treasury will never regain one red cent of the funds unilaterally drawn by the Bureau.
This novel cession by Congress of its appropriations power—its very obligation “to maintain the boundaries between the branches,” id. at 231— is in itself enough to give grave pause. But Congress went to even greater lengths to take the Bureau completely off the separation-of-powers books. Indeed, it is literally off the books: Rather than hold funds in a Treasury account, the Bureau maintains “a separate fund, . . . the ‘Bureau of Consumer Financial Protection Fund,’” which “shall be maintained and established at a Federal [R]eserve bank.” 12 U.S.C. § 5497(b)(1). This fund is “under the control of the Director,” and the monies on deposit are permanently available to him without any further act of Congress. Id. § 5497(c)(1). Thus, contra the Federal Reserve, id. § 289(a)(3)(B), the Bureau may “roll over” the self-determined funds it draws ad infinitum.
To underscore the point, the Act explicitly states that “[f]unds obtained by or transferred to the Bureau Fund shall not be construed to be Government funds or appropriated monies.” Id. § 5497(c)(2). To underscore it again, Congress expressly renounced its check “as a restriction upon the disbursing authority of the Executive department,” Cincinnati Soap, 301 U.S. at 321, by legislating that “funds derived from the Federal Reserve System . . . shall not be subject to review by the Committees on Appropriations of the House of Representatives and the Senate.” Id. § 5497(a)(2)(C).
While I generally, (but with some reservations), support the CFPB, I am also quite sympathetic to the Opinion of the Court and its arguments.
I would like to see Congress proactively step in and change the CFPB to an appropriated format. That would solve the problem entirely. They should not attempt to fight the court decision, which I believe to be correct. The should simply FIX the funding mechanism and make it a constitutional appropriated entity. They could do this in the lame duck session.
