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Supreme Court to Determine Constitutionality of CFPB Funding

cfpb funding structure The U.S. Supreme Court has agreed to consider a decision by the U.S. Court of Appeals for the Fifth Circuit that found the Consumer Financial Protection Bureau’s funding structure was unconstitutional. And so, for the second time in less than four years, the CFPB’s fate is set to be decided by the nation’s highest court.

In its first appearance in 2020, the Court found the CFPB’s structure of a single director who could only be removed by the president “for cause” to be unconstitutional.  The Court noted that the single-director configuration is incompatible with the structure of the Constitution, which “with the sole exception of the Presidency” avoids concentrating power in any single individual.

Ultimately, the Court fixed the problem by severing the “for cause” removal provision which allowed a president to easily remove the director. This allowed the bureau to continue operating.


Unlike most other federal agencies, the CFPB does not ask Congress for funding. Instead, it obtains its funds by making a request to the Federal Reserve, and that request may not exceed 12% of the Federal Reserve’s “total operating expenses.”

The Federal Reserve itself does not obtain funding from Congress, rather its expenses are paid through assessments made on banking institutions. These “insulated funds” are not subject to Congressional approval. But, after paying its expenses, the Federal Reserve is required to turn the rest of the “insulated funds” over to the U.S. Treasury. As the Fifth Circuit saw it, because Treasury obtains its appropriations from Congress the Federal Reserve remains “tethered” to Treasury and so it is within one degree of Congressional oversight. 

In the case of the CFPB, because it obtains its funding from the Fed’s “insulated funds” it is twice removed from Congressional oversight. The funding mechanism is intentional. It is contained in section 1017 of the Dodd-Frank Act which created the bureau in 2010, and is exactly what was explained to Congress in hearings in 2011: “Congress provided the CFPB with a source of funding outside the appropriations process . . .” To be sure, it is statutorily mandated that these funds “shall not be subject to review by” Congressional appropriations. 

The CFPB says it is subject to oversight. Its director is required by law to submit “reports” and appear before Congress and “justify” its “budget request of the previous year.” It is also subject to annual audits by the Comptroller General.

The Fifth Circuit sees it differently. The Constitution’s Appropriations Clause grants Congress exclusive control over “the federal purse” and this control is a necessary apparatus to the checks and balances between the three branches of the federal government. The Appropriations Clause prevents “the executive [branch] . . . from unilaterally spending funds,” by allowing Congress to retain control of the purse strings. The CFPB, in the end, holds the strings to the purse, not Congress, and so it is constitutionally defective, according to the Fifth Circuit’s opinion. 


For more than a century, two political theories have dominated thought on the bureaucratic state. One school believes that agencies that have limited Congressional oversight are antithetical to the separation of powers among the U.S. branches of government. The concern is that these agencies can make rules which in many ways usurp a power that Congress should only possess – the power to make law.

Most agencies, though, have some level of Congressional control because Congress must approve their funding and this oversight provides a check on agency action. Absent political accountability, this school of thought says an agency can develop what is called “bureaucratic resistance.” It occurs when civil servants act outside the sphere of politics in ways that are contrary to the beliefs of elected officials.

Those concerned with the power of administrative agencies believe that the greater the authority given to the agency, the greater the need for political accountability. Especially when the agency routinely makes decisions that impact the lives of citizens as the CFPB will tell you it does. The Fifth Circuit decision is largely following this theory.

Another line of thinking is that it is necessary for bureaucratic agencies (at least some) to act without political influence. This agency type is not swayed by politics, but rather is composed of professional civil servants. Freed from political pressures, it can carry out its role within the bounds of formal and technical restraints. This is the model of the CFPB. 

The problem for the bureau is that in its decade of existence, its public face has always been highly political, with a backseat given to technical and formal restraints. Even before the Fifth Circuit’s decision, last year Politico described recent bureau activities as a “war against industry” that “has delighted progressives and alarmed industry lobbyists who deal with the bureau, escalating partisan tensions around an already-contentious agency.”

Last year, two Republican House members accused the CFPB director of an “unprecedented partisan power grab to take control of the Federal Deposit Insurance Corporation’s agenda.” At around the same time, the bureau announced it possessed “dormant” powers over “nonbanks whose activities the CFPB has reasonable cause to determine pose risks to consumers.” Although these “nonbanks” may not be identified in any law that would allow the CFPB to oversee them or their product or service, the bureau said it can make such a determination that it has such power from “complaints collected by the CFPB, or on information from other sources, such as judicial opinions and administrative decisions.” 


The Court will set down a briefing schedule within the next few weeks. At the earliest, argument would not be heard before this fall. 

If the Court does find the funding scheme unconstitutional, it could result in several rules, like Regulation F for debt collection, being deemed invalid. Other CFPB rulemaking activities cover nearly all other aspects of consumer finance, from mortgage lending to credit reporting and all would have occurred during the period of unconstitutional funding. Enforcement and supervision activities would have a similar fate. The Court might try to sever the funding scheme, if it can find a path to do so, simply to avoid these outcomes. 

For the CFPB’s part, it has not put a pause on any of its activities. But with the Court agreeing to take up the case, it is likely that anyone litigating with the bureau will seek a stay pending the Court’s decision.


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Donald Maurice provides counsel to the financial services industry, successfully litigating matters in the state and federal courts in individual and class actions. He has successfully argued before the Third, Fourth and Eighth Circuit U.S. Courts of Appeals, and has represented the financial services industry before several courts including as counsel for amicus curiae before the United States Supreme Court. He counsels clients in regulatory actions before the CFPB, and other federal and state regulators and in the development and testing of debt collection compliance systems. Don is peer-rated AV by Martindale-Hubbell, the worldwide guide to lawyers. In addition to being a frequent speaker and author on consumer financial services law, he serves as outside counsel to RMA International, on the governing Board of Regents of the American College of Consumer Financial Services Lawyers, and on the New York City Bar Association's Consumer Affairs Committee. From 2014 to 2017, he chaired the ABA's Bankruptcy and Debt Collection Subcommittee. For more information, see

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