The constitutionality of the funding structure for the Consumer Financial Protection Bureau (CFPB) will ultimately be decided by the United States Supreme Court, marking the second time in three years that the nation's highest court will hear a case regarding the CFPB's constitutionality. The list of orders that includes this case was released on Monday, February 27th, 2023.
In October 2022, a three-judge panel in the Fifth Circuit U.S. Court of Appeals ruled that the funding source for the CFPB is unconstitutional. The Supreme Court has agreed to hear the case, but will not be fast-tracking the proceeding per the Biden administration's request. The Court will hear the case in its next term, which starts in October 2023, meaning a final decision in the case will likely not be reached until 2024.
The plaintiffs in the original case, Community Financial Services of America and Consumer Service Alliance of Texas, challenged the CFPB's structure and its powers granted by Congress, and argued that the the CFPB's payday rule exceeded its statutory authority. The appeals court rejected the majority of the challenges brought forth by the the two groups, but ultimately ruled that the CFPB's design is in violation of the Constitution because it receives Federal Reserve funding rather than the appropriations legislation passed by Congress.
"The Bureau's funding scheme is unique across the myriad independent executive agencies across the federal government," the panel stated in the ruling. "It is not funded with periodic congressional appropriations." The CFPB, however, asserts that the Fifth Circuit decision relied on an erroneous understanding of the Appropriations Clause, and has filed a new certiorari petition to bring the case before the Supreme Court.
The CFPB's constitutionality was previously ruled upon by the Supreme Court in mid-2020, when Seila Law LLC v. Consumer Financial Protection Bureau asked the court to determine whether the substantial executive authority of the CFPB violates the Constitutional principle of the separation of powers between the branches of the federal government. In that case, the Supreme Court ruled in a 5-4 decision that the President of the United States has the authority to fire the CFPB director with or without cause, but the structure of the Bureau was not changed by the ruling. The ruling led President Biden to ask Kathy Kraninger to step down from the position of CFPB Director; Rohit Chopra was nominated, and ultimately confirmed by the Senate, to fill the position.
Would you like to stay up-to-date on the industry and receive important regulatory and compliance updates? Make sure to subscribe to our Compliance Newsletter so you don't miss anything!