Supreme Court Rules CFPB Funding Structure is Constitutional

On May 16, 2024, the Supreme Court released its decision in Consumer Financial Protection Bureau vs. Community Financial Services Association of America, a case that questioned the constitutionality of the funding structure of the Consumer Financial Protection Bureau (CFPB). In a 7-2 decision, the Court—in an opinion authored by Justice Clarence Thomas—roundly rejected CFSAA’s arguments that the CFPB’s unique funding process was unconstitutional. The Court’s ruling upheld the structure of the CFPB and fended off a challenge from an industry group hoping to limit the Bureau’s power to investigate and stop unfair and illegal lending practices. (See CFPB v. CFSAA)

In 2011, the Dodd-Frank Act—passed in response to the financial crisis—created the CFPB to regulate consumer-facing financial products such as payday loans, auto loans, and credit cards. Most government agencies are funded by annual appropriations from Congress, making them highly subject to the political agendas of lawmakers. To protect it from political pressure that could limit its ability to regulate unfair and illegal financial practices, Congress authorized the CFPB to pull money directly from the Federal Reserve each year. The Bureau’s director is given the authority to determine the amount, which is limited by an inflation-adjusted cap (for FY2024, that cap is about $785 million).

The Consumer Financial Services Association of America (CFSAA), a trade group of payday loan and other small-dollar lenders, had sued the Bureau in 2017 over regulations it published on certain high-interest loans. As part of the legal challenge, the CFSAA argued that the Bureau’s funding structure violated the Constitution’s Appropriations Clause—which requires that all money taken out of the Treasury be explicitly authorized by Congress—because it was too open-ended. The Court found no merit in CFSAA’s arguments.

Among other examples, the Court noted that the Postal Service funded itself through revenue from postal services as historical precedent. The Supreme Court’s ruling puts to rest a challenge that could have jeopardized the Bureau’s entire existence and re-affirms its independence. 

The Court had previously ruled in 2020 in Seila Law vs. Consumer Financial Protection Bureau that the Bureau’s leadership structure was unconstitutional. The CFPB had been created with a single independent director who was nominated for a five-year term but could only be removed under limited circumstances like neglect of duty or malfeasance. In Seila Law, the Court ruled that this structure violated the Constitution’s separation of powers by denying the President the power to oversee the Bureau’s director. The Court removed the restrictions on firing the Bureau’s director but noted that this issue did not affect the rest of CFPB’s operations. (See Seila Law vs. CFPB)