Last October, an especially right-wing panel of the United States Court of Appeals for the Fifth Circuit effectively declared the entire Consumer Financial Protection Bureau unconstitutional. On Monday, the Supreme Court announced that it will review this decision. The case is CFPB v. Community Financial Services Association of America.
Realistically, a majority of the justices are likely to reverse the Fifth Circuit’s decision — indeed, it would be shocking if five justices embraced the Fifth Circuit’s poorly reasoned opinion. Even Judge Cory Wilson, the Trump judge who authored that decision, admitted in his opinion that “every court to consider” the arguments presented in this case has deemed the CFPB to be “constitutionally sound.”
Should the Fifth Circuit’s outlier decision stand, consumers would suffer. As Wilson explained in his opinion, the CFPB assumed enforcement authority “over 18 federal statutes” when it was formed nearly a dozen years ago, and these statutes “cover everything from credit cards and car payments to mortgages and student loans.” Wilson’s approach, in other words, would effectively neutralize much of the federal government’s ability to fight financial fraud.
So the Court’s decision to consider this case is probably good news for consumers.
The CFPB is constitutional
The case turns on the unusual way the CFPB is funded. Although most federal agencies receive an annual appropriation from Congress that funds their operations, the CFPB is one of several federal agencies with a separate funding source.
The CFPB, however, is unusual in that its funding first passes through a different federal agency, the Federal Reserve. Each year, the CFPB informs the Federal Reserve how much money it needs to fund its operations. Federal law then provides that the Fed will transfer this money to the CFPB, so long as it does not exceed 12 percent of the Fed’s own operating expenses.
Wilson’s decision for the Fifth Circuit is difficult to parse, but it claims that this funding structure is “unique,” and places a great deal of weight on that claim in declaring the CFPB’s funding mechanism unconstitutional. But nothing in the Constitution forbids this unusual funding structure, regardless of whether or not it is unique.
The Fifth Circuit rested its decision on a provision of the Constitution which provides that “no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” But, as the Supreme Court held in Cincinnati Soap Co. v. United States (1937), this provision “means simply that no money can be paid out of the Treasury unless it has been appropriated by an act of Congress.”
In this case, Congress passed a law, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which provides that the CFPB shall be funded by up to 12 percent of the Federal Reserve’s total operating expenses. Thus, under Cincinnati Soap, the CFPB is constitutional because it was funded by an act of Congress.
Again, the Fifth Circuit’s refusal to follow Cincinnati Soap is at odds with the views of every other court to consider this issue. And, while the current Supreme Court is far to the right, the Fifth Circuit is well to the right of the median justice — in much the same way that, say, Rep. Marjorie Taylor Greene (R-GA) is well to the right of Senate Majority Leader Mitch McConnell (R-KY) — so it is unlikely that there are five votes on this Supreme Court who will agree with Wilson that an entire federal agency should be shut down.