CFPB Files Cert Petition Requesting Expedited Review of Fifth Circuit Decision Finding Funding Structure Unconstitutional

As discussed here, on October 19, a three-judge panel of the Fifth Circuit Court of Appeals held that the Consumer Financial Protection Bureau’s (CFPB) funding mechanism violates the appropriations clause because the CFPB does not receive its funding from annual congressional appropriations like most executive agencies, but instead receives funding directly from the Federal Reserve based on a request by the CFPB’s director. Yesterday, the CFPB filed a petition for a writ of certiorari to the U.S. Supreme Court, requesting not only that the Court hear the case, but also that it be decided on an expedited basis during the Court’s current term. Given the importance of the decision and the gravity of the potential implications, the Court may well take the unusual step of granting the petition and agreeing to the requested expedited schedule.

Highlights From the Petition

In its petition, the CFPB argues that the Fifth Circuit erred in holding that the CFPB’s funding through the Federal Reserve unconstitutionally insulates it from congressional oversight and appropriations. In support of its position, the CFPB points to the fact that the Dodd-Frank Act requires the CFPB director to regularly submit reports to and make appearances before Congress to justify the CFPB’s budget requests. The comptroller general also must conduct annual financial audits of the CFPB and submit annual reports to Congress.

The CFPB further argues that its funding mechanism is not meaningfully different from numerous other agencies, such as the Federal Reserve Board, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC), all of which the CFPB argues are funded outside the congressional appropriations process. Relying on existing Supreme Court precedent, the CFPB argues that the appropriations clause leaves it to Congress to determine the duration, form, source, and specificity of such appropriations to government agencies. By prescribing the source, amount, duration, and purpose of the CFPB’s funding in the Dodd-Frank Act, Congress satisfied these requirements.

The CFPB also took on the Fifth Circuit directly in several places. First, with respect to the Fifth Circuit’s highlighting Dodd-Frank’s provision stating funds transferred to the CFPB “shall not be construed to be Government funds or appropriated monies,” the CFPB argues this merely exempts those funds from statutes that impose limitations. The CFPB highlighted similar provisions in the funding statutes for the Farm Credit Administration, Federal Reserve Board, and the OCC as illustrative.

Further, to the extent the Fifth Circuit was motivated by separation of powers concerns, the CFPB argues such concerns are misplaced. “Where, as here, Congress has enacted a law that expressly authorized the Executive Branch expenditures at issue, ‘the straightforward and explicit command of the [a]ppropriations [c]lause’ is satisfied. And courts have no license to depart from the text and history of the constitutional provisions adopted by the Founders in pursuit of their own views about the proper structure and funding of administrative agencies.”

Lastly, the CFPB challenged the Fifth Circuit’s remedy on two grounds. First, arguing that even if the Fifth Circuit correctly held the CFPB’s funding process violates the appropriations clause, it failed to conduct a severability analysis to see if any defects in the statute could be severed, while leaving the rest intact. Second, arguing that even if the entire funding mechanism were to be found unconstitutional, that would only require that the CFPB halt further spending of funds, but it would not compel courts to unwind already completed actions like the Payday Lending Rule at issue.

Request for Expedited Review

Beyond the asserted errors above and the circuit split on the issue, the CFPB argued the Supreme Court should grant the petition because of the potentially massive implications of the decision. According to the CFPB, the Fifth Circuit’s decision “calls into question virtually every action the CFPB has taken in the 12 years since it was created … [and] threatens to inflict immense legal and practical harms on the CFPB, consumers, and the Nation’s financial sector.” Due to the gravity of the decision, the CFPB requests that the Supreme Court “consider the petition at its January 6, 2023 conference and hear the case during its April 2023 sitting.”

Going Forward

While requesting an expedited review is unusual, given the real-world implications for the financial industry highlighted in the petition if the decision is upheld, we suspect the case will indeed be decided this term, i.e., by June 2023. The CFPB’s decision to highlight just how similar its funding structure is to other agencies could serve to encourage broader challenges in the future with regard to those agencies. One thing is certain — uncertainty will remain with respect to actions taken by the CFPB, and possibly others, for the foreseeable future.