Fifth Circuit May Invalidate CFPB Funding Structure

Since the Dodd Frank Wall Street Reform and Consumer Protection Act, the legislation that established the Consumer Financial Protection Bureau (CFPB), was passed by Congress and signed into law 12 years ago, CFPB’s opponents have taken aim at the Bureau’s leadership and funding structures. That funding structure now appears to potentially be in jeopardy as the U.S. Court of Appeals for the Fifth Circuit has signaled that it may determine that the CFPB’s funding mechanism “violates the separation of powers principle enshrined in the Appropriations Clause.”

As Bloomberg Law reports, “a ruling against the CFPB’s funding mechanism would set up a fight that could ultimately go before the U.S. Supreme Court.”

The Dodd-Frank Act established the CFPB as an independent bureau within the Federal Reserve System, headed by a single director. According to a Congressional Research Service report, “rather than being funded through regular appropriations, the CFPB funds its operations through monetary transfers from the Fed. The Fed must transfer amounts requested by the CFPB director based on the director’s determination of need, subject only to a cap based on a statutory formula.”

Critics have argued that this funding process removes the CFPB from Congressional accountability since its funding is not subject to the Congressionally-determined appropriations process. If the Fifth Circuit ultimately upends the funding mechanism, and if the Supreme Court takes up the case and agrees, Republican lawmakers hostile to the agency will have more leverage over its funding and activities.

Furthermore, “if its funding structure is deemed unconstitutional, the agency may have to redo the regulatory enforcement actions it took while being funded through the Fed, in moves that could also be challenged in court,” Bloomberg reports.