The Great Recession, the economic downtown that spanned 2008 to 2012, was the worst economic crisis in the United States since the depression of 1929 to 1939. Federal Reserve History, The Great Recession and its Aftermath.

One of the outgrowths of the Great Recession was the Consumer Financial Protection Bureau, which sought to protect consumers from unfair, predatory, or illegal conduct by financial institutions:

Title 12, Chapter 53, Subchapter V of the U.S. Code contains the legislation that created and regulates the Bureau. Legal Information Institute, Cornell University School of Law.

In or about 2020, the Community Financial Services Association of America, Limited, and others brought suit in the 5th Circuit (located in the South, and known to be quite conservative), to have the funding source of the CFPB declared unconstitutional, and thus force Congress back to the drawing board with regard to funding the organization. The underlying goal was seemingly to deny funding to the CFPB and thereby defang it as a regulatory body. The 5th Circuit held that the CFPB’s funding was unconstitutional.

However, the federal government appealed the 5th Circuit ruling, and the US Supreme Court issued his ruling in May 2024, upholding the funding of the CFPB, and thus granting a lifeline to the agency itself.

The key argument in the Supreme Court was “source and purpose” form of funding of the CFPB, by which Congress grants an appropriation of up to $600 million for enforcement of the agency’s regulations, was unconstitutionally vague, and a breach of the Appropriations Clause, Art. I, §9, cl. 7. The Community Financial Services Association of America, Limited, argued that such funding would place no restrictions on CFPB’s funding authority, and represented an abdication of funding authority by Congress, in favor of the executive branch.

At oral argument and in its written opinion, the Supreme Court pushed back, pointing out that the Customs Service, from its beginning, and the US Postal Service, had funding that either was not subject to a fixed annual limit, or had the discretion to spend within specific bounds to effect their statutory mission.

Associate Justice Thomas, writing for the majority, said that:

“In short, the origins of the Appropriations Clause confirm that appropriations needed to designate particular revenues for identified purposes. Beyond that, however, early legislative bodies exercised a wide range of discretion. Some appropriations required expenditure of a particular amount, while others allowed the recipient of the appropriated money to spend up to a cap. Some appropriations were time limited, others were not. And, the specificity with which appropriations designated the objects of the expenditures varied greatly.”

. . .

“[The CFPB’s] funding statute contains the requisite features of a congressional appropriation. The statute authorizes the Bureau to draw public funds from a particular source—“the combined earnings of the Federal Reserve System,” in an amount not exceeding an inflation-adjusted cap. 12 U. S. C. §§5497(a)(1), (2)(A)–(B). And, it specifies the objects for which the Bureau can use those funds–to “pay the expenses of the Bureau in carrying out its duties and responsibilities.” §5497(c)(1).

“[Para.] Further, the Bureau’s funding mechanism fits comfortably with the First Congress’ appropriations practice . . .

“[Para.] For these reasons, we conclude that the statute that authorizes the Bureau to draw funds from the combined earnings of the Federal Reserve System is an “Appropriatio[n] made by Law.” We therefore hold that the requirements of the Appropriations Clause are satisfied.”

[Bold and italics added]

Applying this reasoning to the CFPB, the SCOTUS held at the term “appropriation,” as understood at the time of the adoption of the Constitution, did not require Congress to a fixed figure every year. And appropriation may validly be based upon a combination of both fees generated and Congressional grant, and moreover, need not be fixed as a required expenditure every fiscal year.

In the end, the legal questions were 1) does the Appropriations Clause of the Constitution bar Congress from giving an agency an upper limit budget appropriation, stating that the agency may spend no more than $XX in the fiscal year, rather than a fixed a dollar amount, and 2) does such funding violate separation of powers, by abdicating to the executive branch the decision or the extent of funding granted to the regulatory agency.

The Supreme Court answered “no” to both questions.

Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited, Docket No. 22-448, Decided May 16, 2024

The CFPB will live to fight another day.


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