Supreme Court grapples with constitutionality of Elizabeth Warren’s consumer watchdog agency

The Consumer Financial Protection Bureau, Sen. Elizabeth Warren’s brainchild, fought for its life Tuesday at the Supreme Court, arguing that there is nothing unusual about Congress giving the Wall Street regulatory agency the power to set its own budget without asking lawmakers for money each year.

The case raises big questions about Congress’ power of the purse and how much of that power lawmakers can give to the president.

A ruling against the CFPB could have significant ramifications, including unraveling a decade’s worth of agency decisions. Some legal analysts say it could threaten the foundation of other agencies that don’t go to Congress for annual funding, such as the Federal Reserve.

Several justices seemed wary of going down that path and suggested that the CFPB falls squarely within congressional funding schemes since the nation’s founding.

“You’re just flying in the face of 250 years of history,” Justice Elena Kagan, an Obama appointee, told the challengers.

The CFPB was created after the 2008 Great Recession as a consumer-focused regulator of banks and other financial institutions. Ms. Warren, then a Harvard University law professor, envisioned a body independent of political pressure.

A Democratic-controlled Congress and a Democratic president crafted the agency to have a single director who couldn’t be fired at will and could set the agency’s budget by taking money from the Federal Reserve, as long as it didn’t exceed $600 million.

The Supreme Court has overturned the CFPB’s firing limits, but opponents say the power to set its own budget also tramples on the Constitution.

“This case is about checks and balances,” said Noel Francisco, the attorney for the Community Financial Services Association of America. The association is challenging the CFPB’s 2017 decision to impose new limits on payday lenders.

Solicitor General Elizabeth Prelogar, defending the CFPB, said the agency is well within the historical norm for how Congress has used its spending power.

She pointed to the Federal Reserve, the Federal Deposit Insurance Corp., the Farm Credit Administration and the Comptroller of the Currency as agencies with budget independence, and the U.S. Postal Service and U.S. Mint, whose earnings set their budgets.

She said the first Congress confronted the same issue when it allowed the Customs Service to be funded to the extent it needed through the revenue it collected.

“This is nothing new or unprecedented,” Ms. Prelogar said.

That argument hit home with some of the justices, who worried about what would be unraveled if the court ruled against the CFPB.

“It sure seems in your view that the Federal Reserve would also be unconstitutional,” Justice Kagan told Mr. Francisco.

Mr. Francisco said the CFPB presents a new mix of elements, including perpetual independent budget authority unrelated to its regulatory activities.

“Congress has not determined the amount that this agency should be spending. Instead, it has delegated to the director the authority to pick his own appropriation,” Mr. Francisco said.

He said that sets it apart from the Customs Service, whose funding came from its enforcement activities and which reported to the Treasury Department, which did have a budget set by Congress.

The 5th U.S. Circuit Court of Appeals ruled in favor of the challengers, and other appeals courts have backed the CFPB. The justices will have the final word in a case that hinges on their view of the Constitution’s spending power.

That power comes from the appropriations clause of Article I, Section 9 of the Constitution: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”

Justice Ketanji Brown Jackson said the clause comes with two competing methods of interpretation. One would mean the founders intended Congress to be exacting in its funding for programs, with specific directions for what is to be spent, she said, and the other could mean Congress has broad power to decide how a program is funded and can do that however it wants.

If that means a perpetual funding source with weak limits, that would fit that vision, she said.

Mr. Francisco said that’s unthinkable. He said the founders wanted Congress’ power of the purse to be a check on the president’s power.

“If you step back and understand that the appropriations clause is meant to separate the power of the sword from the purse, then it has to be a starting point that Congress can’t simply say to the executive, ‘You pick the amount,’” he said. “Which is why I think when you look at this language, at a minimum Congress has to pick the amount.”

He said the $600 million budget cap is too generous to be meaningful.

“Congress can’t simply say to the president, ‘Spend whatever you want,’” Mr. Francisco told the court. “This is functionally no different when you’re saying to an agency, ‘Spend whatever you want in perpetuity as long as you don’t exceed a number so high it’s almost never relevant.’”

Justice Brett M. Kavanaugh, a Trump appointee, noted that Congress can always change the agency’s funding structure.

“Congress could change it tomorrow, and there’s nothing perpetual or permanent about this,” he said.

Mr. Francisco argued for establishing an underlying principle so Congress couldn’t give away that power.

“Once you give up power to another agency, you’ve flipped the baseline for getting it back,” he said.

That line of argument resonated with Chief Justice John G. Roberts Jr., who said Ms. Prelogar took a “very aggressive view” of Congress’ ability to outsource its spending decisions.

He pointed out that Ms. Prelogar, part of the executive branch, appeared before the Supreme Court to defend the legislative branch’s decision to relinquish power to the executive.

“It’s pretty unusual to have that agency drawing its — being able to request however much it wants, subject to a limit that it really hasn’t gotten very close to over the years, from an entity that is also drawing money from the — from the private sector. I didn’t see any particularly compelling historical analogs to that,” the chief justice said.

Correction: A previous version of this article misspelled Justice Elena Kagan’s first name.