Supreme Court rules CFPB funding structure is lawful, jarring attempt to undo Wall Street cop

The Supreme Court ruled Thursday that Congress has broad powers to delegate its spending power to federal agencies and upheld the Consumer Financial Protection Bureau’s power to set its budget without going to Capitol Hill for money each year.

The decision is a victory for Sen. Elizabeth Warren, a Massachusetts Democrat who championed the CFPB as an independent check on Wall Street and big banks in the wake of the Great Recession from December 2007 to June 2009. The agency’s ability to set its own budget was critical to that independence, leaving outside the usual give-and-take of the annual spending process.

Opponents argued that the structure violated Congress’ power of the purse, one of its core duties under the Constitution. The justices ruled 7-2 that Congress can lend that power to federal agencies.

Justice Clarence Thomas, writing for the majority, said all the Constitution requires is that Congress authorize an “appropriation,” or expense. It doesn’t dictate how or how often it must do so.

“Based on the Constitution’s text, the history against which that text was enacted, and congressional practice immediately following ratification, we conclude that appropriations need only identify a source of public funds and authorize the expenditure of those funds for designated purposes to satisfy the Appropriations Clause,” Justice Thomas wrote.

He pointed historically to the U.S. Postal Service, which does not have annual appropriations.

Justice Samuel A. Alito Jr. dissented. He said the Constitution is intended to separate the branches of government and that spending is Congress’ responsibility.

“The Framers would be shocked, even horrified, by this scheme,” Justice Alito wrote in an opinion joined by Justice Neil M. Gorsuch.

He said the effect is to insulate the CFPB from Congress’ direct oversight, leaving the board free to pursue policies such as a recent warning to banks not to deny credit to illegal immigrants because of their unlawful presence and a proposal to delete medical bills from Americans’ credit reports.

All sides acknowledged that the CFPB’s funding is “novel,” though Justice Thomas said it wasn’t far afield from how early congresses funded the customs service through collected fees.

Rather than receiving allocations from Congress, the CFPB gets its money from the Federal Reserve, which raises it from fees and securities sales.

Ms. Warren, then a Harvard University law professor, pushed the idea of a consumer bureau after the 2008 Wall Street crash. She said the political branches of government were either too captured by donors or too asleep to act.

The CFPB was created with a single director insulated from firing except in egregious circumstances, protecting the person from a president’s ire. The director can set the agency’s budget, protecting the bureau from direct congressional meddling.

In 2020, the Supreme Court ruled that the firing restrictions were unconstitutional but left the bulk of the bureau intact.

Opponents hoped to use the funding issue as a deeper strike at the CFPB.

The Community Financial Services Association of America and the Consumer Service Alliance of Texas challenged CFPB’s payday lending rule, which restricted lenders’ ability to provide overly burdensome loans and to access borrowers’ accounts to demand repayment.

The groups won their case before the 5th U.S. Circuit Court of Appeals last year. The judges ruled that Congress illegally surrendered its power to appropriate funds to the bureau.

That court said the payday rule must be vacated because it can be traced back to the CFPB’s unconstitutional funding structure.

Other federal appeals courts have upheld the CFPB’s arrangement. Those courts noted that other federal agencies, such as the Federal Reserve and the Federal Housing Finance Agency, also have budget autonomy.

House Financial Services Committee Chairman Patrick McHenry, North Carolina Republican, said the Supreme Court’s decision invites Congress to revisit the CFPB’s funding and impose more oversight on the “rogue” agency.

“It’s past time the CFPB is held accountable to the American people through their elected representatives,” he said.

Congress’ willingness to hand over powers and responsibilities to the executive branch has been a long-running issue at the Supreme Court. Many conservative legal scholars have urged the justices to play a more active role in protecting Congress from itself.

Dan Greenberg, general counsel at the Competitive Enterprise Institute, said in a statement that the ruling shows the high court will not do that.

“This decision marks an alarming failure by the Court to police the proper exercise of Congress’s constitutional powers,” he said.

Joseph Lynyak, a partner at Dorsey & Whitney, said a ruling against the CFPB might have invalidated every decision the bureau has made since its founding. It also could have undermined other financial regulatory agencies with levels of budget autonomy.

“The Supreme Court today did the correct thing by rejecting the extremely narrow reading of the Appropriations Clause,” he said.

Ms. Warren took a victory lap.

She said the agency has effectively protected consumers against big banks and aggressive lenders and has “returned more than $20 billion in ill-gotten funds to American families.”

“This isn’t the last attack on the CFPB we’ll see from Wall Street, the banks & their Republican allies. When an agency is this effective at sticking up for families against industry’s consumer abuses, it’s an obvious target for million dollar lobbying campaigns,” Ms. Warren said on X.

In his dissent, Justice Alito acknowledged that the majority’s ruling provided a clear rule, but he said it “comes at too high a price,” delivering the kind of budget independence that a monarchy government “would envy.”

“There are times when it is our duty to say simply that a law that blatantly attempts to circumvent the Constitution goes too far. This is such a case,” he said.