SCOTUS NEWS
on Feb 27, 2023 at 11:27 am
The court will likely hear the challenge to the Consumer Financial Protection Bureau’s funding scheme in the fall. (Payton Chung via Flickr)
The Supreme Court on Monday agreed to take up a major case involving funding for the Consumer Financial Protection Bureau, which was formed in response to the 2008 financial crisis. A federal appeals court ruled in October that the funding mechanism for the CFPB violates the Constitution, but the Biden administration, which had asked the justices to weigh in, says that allowing the lower court’s decision to stand could raise “grave concerns” for “the entire financial industry.”
The announcement came as part of a list of orders from the justices’ private conference last week.
The case involving the CFPB began as a challenge by the payday-lending industry to a 2017 rule that (as relevant here) barred lenders from making additional efforts to withdraw payments from borrowers’ bank accounts after two consecutive failed attempts due to a lack of funds.
A three-judge panel of the U.S. Court of Appeals for the 5th Circuit rejected most of the groups’ challenges to the rule, but it ultimately struck down the rule based on the CFPB’s unique funding scheme, which operates outside the normal congressional appropriations process. Instead of receiving money allocated to it each year by Congress, the CFPB receives funding directly from the Federal Reserve, which collects fees from member banks. And that scheme, the court of appeals concluded, violates the Constitution’s appropriations clause, which directs that “[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The appropriations clause, the court of appeals explained, “ensures Congress’s exclusive power over the federal purse,” which is in turn essential to ensure that other branches of government don’t overstep their authority. The court of appeals vacated the 2017 rule on the ground that the CFPB was receiving funding through that unconstitutional funding mechanism when it adopted the rule.
The CFPB came to the Supreme Court in November, asking the justices to take up the case and overrule what it characterized as the lower court’s “unprecedented and erroneous understanding of the Appropriations Clause.” The appropriations clause, the CFPB argued, means “simply that no money can be paid out of the Treasury unless it has been appropriated by an Act of Congress.” In the case of the CFPB, the government contends, “Congress enacted a statute explicitly authorizing the CFPB to use a specified amount of funds from a specified source for specified purposes. The Appropriations Clause requires nothing more.”
Review is warranted, the CFPB contended, because the lower court’s ruling “calls into question virtually every action the CFPB has taken in the 12 years since it was created” and, as a result, “threatens to inflict immense legal and practical harms on the CFPB, consumers, and the Nation’s financial sector.” The CFPB urged the justices to take up the case during the 2022-23 term, so that they could issue a decision before their summer recess.
The challengers countered that if the CFPB were correct about Congress’s powers under the appropriations clause, “a single Congress could effectively nullify the Clause by passing a law authorizing the Executive Branch to spend as much public funds as desired in perpetuity for virtually any purpose, unless and until a future Congress could overcome a Presidential veto to retake its power over the purse.” The groups downplayed the CFPB’s concerns about the effect of leaving the 5th Circuit’s decision in place, noting that the ruling below “simply vacated a single regulation that has never been in effect.”
In a brief order on Monday, the justices agreed to review the CFPB’s appeal but declined to fast-track the proceeding.
The justices also granted review in Pulsifer v. United States, involving the interpretation of the federal sentencing law that allows a defendant convicted of some nonviolent drug crimes to avoid what would otherwise be a mandatory minimum sentence.
Both the CFPB case and Pulsifer likely will be argued in the fall, with decisions to follow sometime in 2024.
This article was originally published at Howe on the Court.