U.s. Court of Appeals for the Fifth Circuit Finds Consumer Financial Protection Bureau's Funding Unconstitutional. Now What?

• Jurisdiction: United States,Federal
• Citation: Vol. 1 No. 1
• Publication year: 2023

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John R. Coleman, Marshall T. Bell, and Jeffrey P. Naimon ^*

The authors review a recent federal circuit court decision holding the funding structure for the Consumer Financial Protection Bureau unconstitutional, and discuss the ruling's ramifications.

The U.S. Court of Appeals for the Fifth Circuit has ruled, in Community Financial Services Association of America, Limited v. Consumer Financial Protection Bureau, ¹ that the funding structure for the Consumer Financial Protection Bureau ("CFPB") is unconstitutional, triggering a potential wave of implications discussed below.

The Holdings

A panel of three Fifth Circuit judges has unanimously held that the CFPB funding structure created by Congress violated the Appropriations Clause of the Constitution, which provides that "no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."

The panel ruled that, although the CFPB spends money pursuant to a validly enacted statute, the structure violates the Appropriations Clause because the CFPB obtains its funds from the Federal Reserve (not the Treasury), the CFPB maintains funds in a separate account, the Appropriations Committees do not have authority to review the agency's expenditures, and the CFPB exercises broad authority over the economy. The court rejected the CFPB's arguments that the funding structure was necessarily constitutional because it was created by and subject to Congress, and distinguished other agencies that are funded outside of the annual appropriations process.

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The case involves a challenge to the CFPB's 2017 payday rule, which prohibits lenders from attempting to withdraw payments for covered loans from consumers' accounts after two consecutive withdrawal attempts have failed due to insufficient funds. The court rejected other challenges to the...