Appeals court rules CFPB funding structure constitutional

The U.S. District Court for the Southern District of New York unanimously ruled that the Consumer Financial Protection Bureau is constitutionally funded, setting up competing legal rulings for the Supreme Court to consider later this year. 

The March 23 appeals court ruling, written by a three-judge panel, came in a case involving a Tennessee law firm that was fighting a CFPB order to turn over documents relating to debt collection activities. The company alleged that the order was unenforceable because the CFPB’s funding violated the Appropriations Clause and Congress had delegated its appropriations authority when setting up the agency’s funding. 

“Because the CFPB’s funding structure was authorized by Congress and bound by specific statutory provisions, we find that the CFPB’s funding structure does not offend the Appropriations clause,” the court wrote.

The ruling came after a three-judge panel in the U.S. District Court for the Western District of Texas ruled in October that the agency’s funding structure is unconstitutional because it draws funding from the Federal Reserve instead of Congress. The court’s ruling invalidated the bureau’s 2017 payday lending rule limiting the collection options for payday lenders.  Following the ruling, the Biden administration asked the Supreme Court to hear the case, which the high court has since agreed to do. 

In the Texas court case, the judges spoke in strong terms against the CFPB’s current funding structure. “Congress gave the director its purse containing an off-books charge card that rings up [un]appropriated monies,” the judges wrote. ‘Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it.”

The Southern District of New York disagreed. “We cannot find any support for the Fifth Circuit’s conclusion in Supreme Court precedent,” the court said. “To the contrary, the court has consistently interpreted the Appropriations Clause to mean simply that ‘the payment of money from the Treasury must be authorized by a statute.’” 

The court cases come as top Democrats and Republicans continue to battle over the future of the agency. Last September, more than three-dozen state attorneys general asked the Supreme Court to take up the funding case. A group of 16 Republican-led states urged the justices to affirm the Texas decision. A group of 20 Democrat-led states backed the Biden administration’s request that the Supreme Court reverse the decision. 

Following the New York court ruling, Senate Banking Chair Sherrod Brown (D-Ohio), called the findings “a step forward for consumers and working families,” adding that Congress modeled the CFPB’s funding structure after the Office of the Comptroller of the Currency, FDIC and Federal Reserve.

Rep. Tom Emmer (R-Minn.) introduced a bill this month that would require the director to establish an Office of Economic Analysis to regularly assess the impact of the agency’s actions on consumers and the success of any rule over a 10-year span.  

A bill sponsored by Rep. Byron Donalds (R-Fla.) would eliminate the agency. In recent testimony before the Senate Banking Committee, Donalds called the CFPB “a highly partisan agency” that has gone beyond its stated mission. “It appears to be a freelancer rather than a regulator,” Donalds added. The bill is unlikely to pass due to the split composition of Congress.