US Supreme Court justices suggested they aren’t likely to declare the Consumer Financial Protection Bureau’s funding system unconstitutional, hearing arguments in a case that had threatened to upend years of agency work.
Even some of the court’s conservative justices indicated Tuesday they are inclined to back the agency, set up after the 2008 financial crisis to regulate mortgages, auto loans, credit cards and other consumer-finance products. Congress let the bureau draw as much money as it needs – up to a cap it has never hit – from the Federal Reserve.
“I get your point that this is different, that it’s unique, that it’s odd, that they’ve never gone this far,” Justice Clarence Thomas told a lawyer challenging the system on behalf of a payday-lending trade group. “But not having gone this far is not a constitutional problem.”
Supreme Court Weighs Fate of Agency That Vexes Banks, Riles GOP
Although the high court case centers on a never-enforced payday-lending rule, the impact is potentially far broader. The Biden administration says the ruling from the 5th US Circuit Court of Appeals cast a legal cloud over every action the agency has taken since its creation, providing an argument for re-opening even long-finalized rules and enforcement cases.
The 5th Circuit said the bureau was set up in violation of the constitutional provision that requires a congressional appropriation for government spending.
The clash will shape the future of an agency that critics see as the ultimate symbol of an unaccountable and overreaching federal bureaucracy – but that backers say has provided crucial safeguards and an independent check against corporate power.
Skeptical Justices
Noel Francisco, the lawyer fighting the agency on behalf of the Community Financial Services Association of America, said Congress unconstitutionally gave away its appropriations power in setting up the bureau.
“Congress has not determined the amount that this agency should be spending,” said Francisco, who served as solicitor general under former President Donald Trump. “Instead it has delegated to the director the authority to pick his own appropriation subject only to an upper limit that’s so high, it’s rarely meaningful.”
In fiscal 2022, the agency received $641.5 million in funding, short of its $734 million cap.
The current solicitor general, Elizabeth Prelogar, told the justices that the CFPB was indistinguishable from many other federal agencies, including ones that date back to the country’s founding. She said that Congress set up the Customs Service in 1789 to have “a standing, uncapped source of funding” from revenues the agency collected.
Justices from across the ideological spectrum suggested they agreed with those arguments. “You’re just flying in the face of 250 years of history,” Justice Elena Kagan said to Francisco.
Justice Amy Coney Barrett told him, “I think we’re all struggling to figure out then what’s the standard that you would use.” She later questioned whether Francisco’s arguments had a “textual hook” in the Constitution.
Problem Fixed
Justice Brett Kavanaugh rejected Francisco’s suggestion that the CFPB was enjoying a “perpetual” funding stream. “Congress could change it tomorrow, and there’s nothing perpetual or permanent about this,” Kavanaugh said.
The Supreme Court in 2020 gave the president broad power to fire the CFPB’s director, striking down job protections Congress had enacted, though stopping short of abolishing the agency altogether.
Kavanaugh suggested that ruling, Seila Law v. CFPB, had resolved the most glaring constitutional problem with the bureau.
“I certainly agree that as originally constructed the CFPB had, in my view, a massive constitutional flaw in the single director who was protected by for-clause removal, but that of course was fixed and addressed in Seila Law, and now it’s not independent at all,” Kavanaugh said. “It’s under the direct supervision and control of the president.”
The case is Consumer Financial Protection Bureau v. Community Financial Services Association, 22-448.
(Update with comments from lawyers, justices starting in fifth paragraph.)
