Supreme Court rules CFPB funding structure constitutional

In a 7-2 decision issued Thursday, the court overturned a ruling by the U.S. Fifth Circuit Court of Appeals that the agency’s funding mechanism violated the appropriations clause of the U.S. Constitution.

The CFPB, created by Congress as part of the Dodd-Frank Act of 2010, is funded from the earnings of the Federal Reserve System and is not part of the federal budget.

A trade group representing payday lenders, the Community Financial Services Association of America, had sued the CFPB in an attempt to cast the independent regulator’s future into doubt.

The Supreme Court decision, written by Justice Clarence Thomas, held the funding mechanism set up under the Dodd-Frank Act was not a violation of the appropriations clause.

“Under the appropriations clause,” he wrote, “an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes. The statute that provides the bureau’s funding meets these requirements. We therefore conclude that the bureau’s funding mechanism does not violate the appropriations clause.”

Justices Samuel Alito and Neil Gorsuch dissented.

In a statement, the CFPB called the ruling “a resounding victory for American families and honest businesses alike.”

“This ruling upholds the fact that the CFPB’s funding structure is not novel or unusual but in fact an essential part of the nation’s financial regulatory system, providing stability and continuity for the agencies and the system as a whole,” the statement said.

Eric Mogilnicki, a partner at law firm Covington, said the ruling allowed the CFPB to continue operating under its current funding mechanism.

“This means that bureau initiatives that have been stayed pending the court’s decision may proceed and that the bureau may be emboldened now that it has survived another challenge to its structure,” he said.

Jonice Gray, a partner at law firm Paul Hastings, said now that the decision has been delivered, “The real firestorm begins.”

“Numerous pending cases challenging recent CFPB actions have been hanging in the balance pending on this decision. These cases will reignite, having significant implications for far-reaching matters such as CFPB rulemaking and examination authority,” she said.

The structure of the CFPB, including its funding mechanism, was designed to shield the independent agency from political headwinds. In a 2020 decision, however, the Supreme Court ruled the regulator’s single-director structure violated the Constitution’s separation of powers between the executive and legislative branches. In a separate decision delivered at the same time, the court ruled the CFPB’s executive director “must be removable by the president at will.”