A recent decision by the U.S. Court of Appeals for the Fifth Circuit concluded that the funding mechanism for hte Consumer Financial Protection Bureau is unconstitutional because it makes the agency too independent from the political branches. Specifically, the Fifth Circuit concluded that it was unconstitutional to allow a regulatory agency to bypass the appropriations process and, in effect, set its own budget.
As expected, the Solicitor General has filed a petition for certiorari with the Supreme Court seeking review of the Fifth Circuit’s decision. Among other things, this brief argues that the CFPB’s budget is properly appropriated. Yet as Adam White notes in the Wall Street Journal, this contradicts what the CFPB, its creators and others have said about the CFPB’s funding in the past.
[The SG’s] petition, filed Nov. 14, makes a remarkable claim: that the CFPB’s self-funding power is constitutional because Dodd-Frank itself satisfies the Constitution’s requirement. The CFPB and the Justice Department argue that the statute’s grant of perpetual funding, in the amount determined each year by the CFPB director, “indisputably establishes an appropriation under the long-accepted understanding of that term.” . . .
But in making its argument to the court, the CFPB and Justice Department’s joint brief left out a crucial point: Throughout its entire history, the CFPB itself has consistently declared that its funding doesn’t come from “appropriations”:
The CFPB’s first director, Richard Cordray, testified to Congress in 2012 that the CFPB’s revenues were “non-appropriated funds.”
The CFPB’s 2013 strategic plan asserted that by “providing the CFPB with funding outside of the congressional appropriations process,” lawmakers had ensured the bureau’s “full independence.” . . .
Since 2013, the CFPB’s financial reports consistently called the bureau “an independent, non-appropriated” agency. The most recent such report states: “The Dodd-Frank Act explicitly provides that Bureau funds obtained by or transferred to the CFPB are not government funds or appropriated funds.” That report was released Nov. 15, the day after the bureau filed its Supreme Court petition. . . .
The CFPB isn’t alone in describing its funding as something other than “appropriations.” When Congress designed the agency, a Senate Banking Committee report found that a guarantee of “adequate funding, independent of the Congressional appropriations process,” would be “absolutely essential” to the agency’s “independent operations.” That theme has persisted among the CFPB’s advocates in Congress. In 2018, 40 Democratic senators opposed a proposal to return the bureau to Congress’s appropriations power. They wrote that “the CFPB receives its funding from the Federal Reserve, rather than from the Congressional appropriations process” to “ensure its independence.”
In short, the CFPB and its advocates have always understood that its money didn’t come from “appropriations.” This was a feature, not a bug—until it became clear that such “full independence” from Congress’s power was an invitation to constitutional scrutiny.
I suspect that these prior characterizations will be featured int he opposing briefs and will be raised in oral argument if (as I expect) the Supreme Court grants certiorari. As White notes, the whole point of this funding structure was to make the CFPB more independent. Yet these efforts to make this powerful agency independent of both Congress and the President are precisely what raises constitutional concerns.
Just because the CFPB has an unusal funding structure does not necessarily mean that it is unconstitutonal. Other federal entities, including the Federal Reserve, are funded in a somewhat similar fashion. Further, as Will Baude noted here, Zach Price has argued that the Fifth Circuit was wrong, and that the CFPB’s funding structure is misguided, but constitutional. But it is one thing to argue that the CFPB is funded in a constitutional manner. It is quite another to claim the CFPB is not funded the way everyone has always understood.
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