Not every bad policy is unconstitutional. The case in point is the funding mechanism for the Bureau of Consumer Financial Protection established by the Dodd–Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203), which prefers to call itself the Consumer Financial Protection Bureau (“CFPB“). When the 111th Congress created the agency, it tried to entrench its policy views against the possibility that a later (Republican) congressional majority or president would disagree with them. For example, as originally conceived, the agency is headed by a single director, removable by the President only for cause. Thus, when Donald Trump became President, he was not able to replace the Obama-appointed incumbent.1 This feature of the agency was declared unconstitutional in Seila Law LLC v. Consumer Financial Protection Bureau, 591 U.S. ____ (2020).
The CFPB is not funded through the annual (and usually dysfunctional) budget process. It gets to requisition the funding it wants (up to a limit that it has never actually reached) from the Federal Reserve. Opponents of one set of its regulations, those relating to payday lending, used the funding mechanism as one of the bases for a challenge to the regulations. CFPB v. Consumer Financial Services Assn. (22-448).2
One part of Article I, section 9, of the U.S. Constitution, called the Appropriation Clause, provides: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law . . . .” The argument is that because the CFPB is not subject to the annual budget process like everyone else, its ability to call for money from the Fed is unconstitutional and this means it cannot validly promulgate the payday lending rules.
There’s really a lot wrong with this argument, starting with its disconnect from the actual text of the Appropriations Clause. There is no requirement of any annual process. Indeed, the only constitutional durational limit on an appropriation is the two-year maximum for an appropriation for the Army contained in Article I, section 8. Not every other part of the federal government goes hat in hand to Congress every year. These were two of the issues discussed at length at the Supreme Court oral argument on October 3, 2023 (audio | transcript). They didn’t even have time to get to the question of how the possible issue of the funding mechanism means that one particular set of regulations that it adopted is invalid.3
I don’t see the votes to sustain the Court of Appeals’ decision, so expect the CFPB to survive.
But not everything that is constitutional is good policy. This case generated a lot of amicus activity (non-parties who obtain permission to file briefs in the case), one of whom was former acting director Mulvaney himself. His brief, although somewhat tangential to the discrete issues to be decided, was replete with well-taken criticisms of the agency.
Jay Bohn
October 12, 2023
- In 2017 the first CFPB director, Richard Cordray, resigned as director in order to run for governor of Ohio. Immediately before leaving Cordray appointed CFPB chief counsel Leandra English to the vacant post of executive director with the expectation that she would continue as acting director. President Trump appointed his OMB director, Mick Mulvaney, acting director under different legislation. English was not successful in her subsequent lawsuit to claim the job. ↩︎
- The challengers actually won on this issue in the Court of Appeals, so the CFPB is the petitioner in the Supreme Court. ↩︎
- For more detail on the argument, if you don’t have time to read or listen to it yourself, read Amy Howe, Court divided over funding mechanism for consumer watchdog, SCOTUSblog (Oct. 3, 2023, 5:33 PM), https://www.scotusblog.com/2023/10/court-divided-over-funding-mechanism-for-consumer-watchdog/ ↩︎