Supreme Court upholds CFPB funding scheme, rejecting conservative challenge

The Supreme Court on Thursday ruled the funding mechanism of the Consumer Financial Protection Bureau complies with the appropriations clause, reversing an appeals court decision that found it unconstitutional.

The 7-2 decision by Justice Clarence Thomas rejected a broad case that sought to challenge the agency’s funding mechanism, reversing a lower-court ruling that would have undermined the watchdog agency created by Congress 12 years ago. Republican-appointed Justices Samuel Alito and Neil Gorsuch dissented.

The CFPB, formed amid the 2008 financial crisis to protect consumers from predatory banks and lenders, is funded by drawing money from the Federal Reserve after the CFPB director makes a request for the money he or she deems “reasonably necessary to carry out” the bureau’s duties. 

The lawsuit, Consumer Financial Protection Bureau v. Community Financial Services Association of America, was brought by key players in the payday lending industry who say the CFPB is unconstitutionally funded by the Fed because most federal agencies receive appropriations from Congress.

Alito’s dissent, joined by Gorsuch, complained that “today’s decision turns the Appropriations Clause into a minor vestige.”

The case involved a decision by the U.S. Court of Appeals for the 5th Circuit that said the funding mechanism Congress adopted to ensure the CFPB’s independence was unconstitutional. A panel of three judges, nominees of former President Donald Trump, ruled in 2022 that the mechanism violated the Constitution’s command requiring congressional appropriation of money. Their decision said the agency’s insulation from congressional committees compiled on that violation.

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But a Supreme Court majority led by Thomas, a Republican-appointed justice, rejected this argument, saying that “an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes.” 

“The statute that provides the Bureau’s funding meets these requirements,” the majority said.