This post first appeared on the Securities Arbitration Alert blog.  The blog’s editor-in-chief is George H. Friedman, Chairman of the Board of Directors for Arbitartion Resolution Services, Inc.

The Supreme Court holds 7-2 that the CPPB’s funding mechanism does not violate the Constitution’s Appropriations Clause.

We reported in SAA 2023-10 (Mar. 9) that the Supreme Court had granted Certiorari in Community Financial Services Ass’n of America v. CFPB, No. 21-50826 (5th Cir. Oct. 19, 2022), where a unanimous Fifth Circuit held that, although the Consumer Financial Protection Bureau (“CFPB”) did not exceed its authority in promulgating the Payday Lending Rule, its funding method is unconstitutionalAs reported in SAA 2022-40 (Oct. 27), the Fifth Circuit’s Opinion stated:

“Congress’s decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers. We thus reverse the judgment of the district court, render judgment in favor of the Plaintiffs, and vacate the Bureau’s 2017 Payday Lending Rule.”

Certiorari Granted

Our editorial comment in # 2022-40 said: “We suspect a Petition for en banc review is next.” As reported in SAA 2022-45 (Dec. 1), eschewing that route, the CFPB instead went right to the Supreme Court. Specifically, the Bureau on November 14, 2022 filed a Certiorari Petition identifying this question:

“Whether the court of appeals erred in holding that the statute providing funding to the Consumer Financial Protection Bureau (CFPB), 12 U.S.C. 5497, violates the Appropriations Clause, U.S. Const. Art. I, § 9, Cl. 7, and in vacating a regulation promulgated at a time when the CFPB was receiving such funding.”

The SCOTUS case is Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited, No. 22-448, and appears on page one of the February 27 Order List. It will be heard next Term.

SCOTUS: Funding Mechanism is Constitutional

The Court’s 7-2 opinion released on May 16 was authored by Justice Thomas. He was joined by Chief Justice Roberts and Justices Sotomayor, Kagan, Kavenaugh, Barrett, and JacksonJustice Kagan filed a concurring opinion, in which Justices Sotomayor, Kavenaugh, and Barrett joined. Justice Jackson filed a concurring opinion. Justices Alito and Gorsuch dissented. The core majority holding:

“Our Constitution gives Congress control over the public fisc, but it specifies that its control must be exercised in a specific manner. The Appropriations Clause commands that ‘[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.’ Art. I, §9, cl. 7. For most federal agencies, Congress provides funding on an annual basis. This annual process forces them to regularly implore Congress to fund their operations for the next year. The Consumer Financial Protection Bureau is different. The Bureau does not have to petition for funds each year. Instead, Congress authorized the Bureau to draw from the Federal Reserve System the amount its Director deems ‘reasonably necessary to carry out’ the Bureau’s duties, subject only to an inflation-adjusted cap. 124 Stat. 1975, 12 U. S. C. §§5497(a)(1), (2). In this case, we must decide the narrow question whether this funding mechanism complies with the Appropriations Clause. We hold that it does.”

The Other Shoe Drops

We reported in SAA 2023-14 (Apr. 13) that, in a split with its sister Circuit, the Second Circuit held unanimously in CFPB v. Law Offices of Crystal Moroney, No. 20-3471 (2d Cir. Mar. 23, 2023), that the Bureau’s funding mechanism does not violate the Constitution’s Appropriations Clause. We later reported as follows:

“On June 21 [2023], Moroney filed a Certiorari Petition in Law Offices of Crystal Moroney v. CFPB, No. 22-1233, identifying this issue for review: “Whether the Consumer Financial Protection Agency’s funding structure—which imposes no meaningful constraints on the authority of the President or CFPB to choose the Bureau’s amount of annual public funding—violates the Appropriations Clause, U.S. Const. Art. I, Sec. 9, Cl. 7, and renders unenforceable the CID [Civil Investigative Demand] issued in this case.”

For nearly a year, the case’s status has been unchanged. That’s no longer the case; the Court’s May 28 Order List on page 1 announces that Certiorari has been denied.

(ed: We’re not surprised by either the decision or the Cert. denial.)