On May 16, the United States Supreme Court delivered a significant 7-2 ruling, affirming that the Consumer Financial Protection Bureau’s (CFPB) funding mechanism does not contravene the Appropriations Clause of the U.S. Constitution.
The decision addresses a longstanding legal dispute surrounding the CFPB’s financial independence under the Dodd-Frank Act, which established a unique funding structure for the agency, outside the traditional annual appropriations process.
Under the Dodd-Frank Act, the CFPB receives funding from the Federal Reserve System, with the Bureau’s Director having discretion over the amount drawn, subject to an inflation-adjusted cap.
Critics argued that this arrangement circumvented congressional oversight and violated the Appropriations Clause by bypassing the standard appropriations procedure.
In a majority opinion authored by Justice Thomas, the Court concluded that the CFPB’s funding mechanism satisfies the requirements of the Appropriations Clause.
The decision implies that appropriations need only identify a source of public funds and authorize their expenditure for specified purposes to meet constitutional standards.
Ruling has far-reaching implications
- Legal Cases: Numerous litigation matters involving the CFPB, which were previously on hold pending the Supreme Court’s decision, can now proceed. This includes challenges to key regulations such as the credit card late fee rule and the 1071 Small Business Lending Rule.
- Payday Lending Rule: The CFPB’s payday lending rule, central to the lawsuit, is revived, prompting expectations of swift action from the Bureau to implement the rule. The agency, under the leadership of Director Chopra, has shown a keen interest in regulating installment lending.
- Ongoing Challenges: Despite the favorable ruling, the CFPB still faces legal challenges from trade associations, particularly under the “major questions” doctrine. This doctrine gained prominence following the Supreme Court’s decision in West Virginia v. EPA, and ongoing challenges are expected, including against the payday lending rule.
Practical implications
Companies affected by CFPB rules and regulations that were in limbo pending the Supreme Court’s decision should remain vigilant.
While litigation outcomes may vary, continued enforcement activity by the CFPB is anticipated. As legal proceedings unfold, businesses should stay informed and prepared for potential regulatory changes.
