WASHINGTON (Legal Newsline) - When Congress kept itself out of the funding for a controversial federal agency, it did not violate the U.S. Constitution.
The U.S. Supreme Court reached that conclusion May 16 in a challenge to the structure of the Consumer Financial Protection Bureau, an agency created in 2011 in response to the financial crisis a few years earlier that has recently drawn increased criticism over its process of instituting rules without approval from lawmakers.
The CFPB is not funded with taxpayer funds. Instead, when it was created, Congress had it receive its budget from the Federal Reserve. The thinking was that the structure would help avoid political battles over money for it, but it also drew challenges under the Appropriations Clause.
Challenges to newly instituted rules cited the alleged unconstitutionality of the CFPB, but the U.S. Supreme Court overturned a Fifth Circuit ruling with a 7-2 opinion authored by Justice Clarence Thomas.
"Based on the Constitution's text, the history against which that text was enacted, and congressional practice immediately following ratification, we conclude that appropriations need only identify a source of public funds and authorize the expenditure of those funds for designated purposes to satisfy the Appropriations Clause," Thomas wrote.
Justice Samuel Alito dissented and filed an opinion, in which Justice Neil Gorsuch joined. Alito wrote that Congress' "power over the purse" helps ensure other branches do not abuse their authority.
"Unfortunately, today's decision turns the Appropriations Clause into a minor vestige," Alito wrote.
"The Court upholds a novel statutory scheme under which the powerful (CFPB) may bankroll its own agenda without any congressional control or oversight."
Alito said the Executive Branch is now free to draw as much money as it wants from any source for any purpose "until the end of time."
"That is not what the Appropriations Clause was understood to mean when it was adopted," he added. "In England, Parliament had won the power over the purse only after centuries of struggle with the Crown.
"Steeped in English constitutional history, the Framers placed the Appropriations Clause in the Constitution to protect this hard-won legislative power."
The CFPB has faced legal challenges over its very existence before. Initially, a director could not be removed from the position without cause, which would have led to directors with wildly different agendas than their presidents.
That was changed after court battles that refused to invalidate actions taken by the CFPB while the unconstitutional structure was in place. Groups have recently leaned on the funding issue when challenging CFPB actions, including the U.S. Chamber of Commerce.
Just last week, the Chamber scored a victory in Texas federal court in a challenge to a CFPB rule that limits credit card late fees to $8, rather than the current $32. Judge Mark Pittman on May 10 issued a preliminary injunction against it until SCOTUS decided the funding issue.
The Chamber makes other arguments that Pittman did not rule on. He will need to now, as the basis of his injunction has been wiped away by the Supreme Court.
House Republicans in the Financial Services Committee have voted to repeal the late fees rule, with chair Andy Barr, a Kentucky Republican, calling the agency "rogue."
Other Biden Administration rules are also headed to court, including the Federal Trade Commission's move to ban noncompete employment contracts.
Bill Himpler, the president of the American Financial Services Association, has said the CFPB's new rules are confusing to lenders who wonder what the CFPB means by "risky" loans without ever defining the term. He said the Supreme Court ruling keeps confusion in place for consumers and the consumer credit marketplace.
"The result may well be continued confusion over unclear CFPB guidance, ongoing uncertainty with rulemaking by blog post and selective enforcement actions, and an agency not bound by robust congressional oversight," he said.
"We remain committed to work with Congress, the Biden administration and the CFPB on clear policies and a regulatory process that both protects consumers and their access to the credit products to meet their financial needs."