As SCOTUS Plans to Make Determination, Second Circuit Rules CFPB’s Funding is Constitutional

Last week, a three-judge panel of the U.S. Court of Appeals for the Second Circuit ruled that the funding of the Consumer Financial Protection Bureau (CFPB) through the Federal Reserve (Fed) is constitutional. The unanimous ruling comes before a review by the U.S. Supreme Court in October on the CFPB’s appeal of a Fifth Circuit ruling that its funding is unconstitutional.

The ruling stems from an attempt by the Law Offices of Crystal Moroney PC, a New York debt collection law firm, to evade the CFPB’s 2017 civil subpoena, but a lower court ruled in favor of the CFPB in August 2020. The debt collector asserted that the CFPB’s funding, which comes from the Fed, violates the Constitution’s Appropriations Clause.

According to Bloomberg Law, the Second Circuit said it “cannot find any support” in Supreme Court precedent for the Fifth Circuit’s ruling. However, Moroney’s attorney Richard Samp said that the CFPB’s demands “illustrated how a federal agency without funding constraints can quickly get out of control.”

Moroney’s firm asserted that the CFPB’s subpoena wasn’t valid because its leadership structure was unconstitutional when the civil investigative demand (CID) was issued. In June 2020, the Supreme Court ruled in Seila Law LLP v. CFPB that the single-director structure violated the Constitution’s separation of powers doctrine, so it made the director an at-will employee of the president.

While the Seila Law decision didn’t address the Bureau’s funding, Congress gave the CFPB the ability to request up to 12 percent of the Fed’s operating expenses, and it must go to Congress if it needs more. But the Fifth Circuit ruled that that funding structure was unconstitutional, and that it gave the CFPB “double insulation” from Congressional oversight.

“To the contrary, the Court has consistently interpreted the Appropriations Clause to mean simply that ‘the payment of money from the Treasury must be authorized by a statute,’” said the Second Circuit, and the CFPB doesn’t receive funds from the Treasury.

Responding to the ruling, Senate Banking Committee Chairman Sherrod Brown (D-Ohio) said that the ruling was “a step forward for consumers and working families.”

“Congress created the CFPB and modeled its independent funding structure after other financial regulators like the OCC, NCUA, FDIC, and the Federal Reserve,” Brown said. “The events of the past month have shown how important independently funded financial regulators are to a stable and healthy economy. I’ll keep fighting to make sure that the CFPB can continue its important work protecting consumers’ money and creating an economy that works for families.”