Fifth Circuit Court of Appeals Finds CFPB Funding Mechanism is Unconstitutional

Oct 21, 2022Federal Regulation, Litigation, News

On Wednesday night, the Fifth Circuit Court of Appeals issued a long-awaited ruling which found that the independent funding mechanism Congress established to insulate the Bureau from political interference violated the Constitution’s separation of powers clause.

“Congress did not merely cede direct control over the Bureau’s budget by insulating it from annual or other time limited appropriations,” the three-judge panel handing down the decision wrote. “It also ceded indirect control by providing that the Bureau’s self-determined funding be drawn from a source that is itself outside the appropriations process—a double insulation from Congress’s purse strings that is ‘unprecedented’ across the government.”

Later in the decision, they write, “so the Bureau’s funding is double insulated on the front end from Congress’s appropriations power. And Congress relinquished its jurisdiction to review agency funding on the back end. In between, Congress gave the Director its purse containing an off-books charge card that rings up ‘[un]appropriated monies.’ Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it.”

“The Bureau’s perpetual insulation from Congress’s appropriations power, including the express exemption from congressional review of its funding, renders the Bureau ‘no longer dependent and, as a result, no longer accountable’ to Congress and, ultimately, to the people,” they wrote.

Shortly after the ruling was handed down, Democrats and Democratic allies who championed the agency reacted with outrage while Republicans and Republican allies who have long opposed it applauded the court’s decision.

Senator Elizabeth Warren (D-Mass.), who led the charge for the CFPB’s creation, described the decision as “lawless and reckless” on Twitter. “[The] CFPB has returned billions of dollars to Americans by doing its job, and its funding is clearly constitutional. Extreme right-wing judges are throwing into question every rule the CFPB enforces to protect consumers and businesses alike.”

On the other side, Rep. Patrick McHenry (R-N.C.), who serves as ranking member on the House Financial Affairs Committee, said in a statement, “as Republicans have said all along, the CFPB’s ‘double-insulated,’ independent funding mechanism is unconstitutional and makes it wholly unaccountable. I’m glad to see the 5th Circuit recognize this fact.”

“Bringing the CFPB under the appropriations process would make it more accountable to the American people through their elected representatives,” McHenry continued.

The CFPB now must determine its next steps, whether it asks for an en banc review by the full circuit court instead of the three-judge panel, appeals it to the Supreme Court, or revisits its funding mechanism to put it under the congressional appropriations process.

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