Supreme Court Signals Skepticism on Claims CFPB is Unconstitutional

Since it was created, opponents of the Consumer Financial Protection Bureau (CFPB) have argued that its funding structure—among other elements—was unconstitutional. Last October, those opponents got a boost when the Fifth Circuit Court of Appeals found that the CFPB’s funding mechanism was unconstitutional. The Supreme Court of the United States subsequently agreed to hear the Bureau’s appeal of the Fifth Circuit ruling.

During the oral arguments in the case last week, the majority of the justices seemed hesitant to accept the argument that the way Congress funds the agency crossed a constitutional line. Unlike other federal agencies, the CFPB is funded directly by the Federal Reserve (Fed). 

“I get your point that this is different, that it’s unique, that it’s odd, that they’ve never gone this far,” Supreme Court Justice Clarence Thomas said to Noel Francisco, a lawyer representing the case’s plaintiffs, according to Banking Dive. “But not having gone this far is not a constitutional problem.”

Not only is the continual operation of the CFPB at stake, but the New York Times noted that every enforcement action and regulation that the agency has put in place since its creation in 2011 would also be at stake. Though the CFPB is funded directly by the Fed, it is not a perpetual fund, so Congress can always intervene to amend it, which the justices said is constitutional. 

Both conservative and liberal justices showed skepticism on the arguments of the agency’s unconstitutionality. According to NBC News, Liberal Justice Elena Kagan noted that Congress has approved open-ended funding for many agencies, including spending programs like Social Security. 

The justices also argued that a ruling against the CFPB could cast legal doubt on how other government entities are funded, including the Federal Reserve itself, as well as the Federal Deposit Insurance Corp. (FDIC), which protects consumers with insurance when banks fail. 

In 2020, the Supreme Court ruled along party lines that the president could fire the director of the CFPB “at will” rather than “for cause.” In addition to the fifth circuit’s decision, the 2nd U.S. Circuit Court of Appeals also found its funding structure constitutional in a March ruling. 

“I certainly agree that, as originally constructed, the CFPB had, in my view, a massive constitutional flaw in the single director who was protected by for-clause removal, but that, of course, was fixed and addressed in Seila Law, and now it’s not independent at all,” said Justice Brett Kavanaugh. “It’s under the direct supervision and control of the president.”