CFPB funding is ruled unconstitutional - Greater Cincinnati Automobile Dealers Association

CFPB funding is ruled unconstitutional

The Fifth Circuit says the scheme violates the separation of powers

The originalist legal revolution continues to pay dividends, and the latest evidence is a bombshell appellate ruling on Wednesday that the Consumer Financial Protection Bureau’s (CFPB) funding scheme is unconstitutional. Congress’s attempt to end-run political accountability for financial regulators has suffered a direct hit.

In 2010, before she was a Senator, Elizabeth Warren designed the CFPB to have extraordinary independence, and it passed as part of Dodd-Frank. In 2020 the Supreme Court struck down the law’s limit on the President’s ability to remove the CFPB director. But Democrats also severed its budget from Congressional appropriations by giving it an automatic funding draw on the Federal Reserve.

Each year the CFPB director simply requests funding from the Fed, which must transfer the money as long as it doesn’t exceed 12 percent of the central bank’s operating expenses. Most other regulatory agencies are subject to Congress’s annual appropriations.

Companies challenged the CFPB payday lending rule in court and argued that the agency’s unique funding scheme violates the separation of powers (Community Financial Services Assn. v. CFPB). A three-judge Fifth Circuit Court of Appeals panel agreed this week, explaining that the bureau’s “double insulation from Congress’s purse strings” is “unprecedented.” It is double insulated because the Fed finances itself through bank assessments and earnings on its bond portfolio, not through Congress.

Dodd-Frank even dictates that “funds derived” from the Fed “shall not be subject to review by the Committees on Appropriations of the House of Representatives and the Senate.” If Congress doesn’t like what the CFPB is doing, tough. Members can’t use appropriations to rein in the agency the way it can, say, the Internal Revenue Service.

The law evades the Constitution’s dictate that “no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The Founders viewed “Congress’s exclusive ‘power over the purse’ as an indispensable check on ‘the overgrown prerogatives of the other branches of the government,’” Judge Cory Wilson writes for the unanimous appellate panel, citing the Federalist Papers.

Alexander Hamilton warned that uniting Congress’s power of the purse with the executive’s sword would “destroy that division of powers on which political liberty is founded, and would furnish one body with all the means of tyranny.” The CFPB “is the epitome of the unification of the purse and the sword in the executive,” writes Judge Wilson, in an opinion that seems destined for the Supreme Court.

Ms. Warren didn’t take this well. She tweeted that the ruling will “stop the CFPB from enforcing rules that prevent debt collectors from harassing you” and “financial firms charging you outrageous junk fees.” No, it will merely subject the bureau to proper supervision by Congress, as the Constitution intended.

Ms. Warren added that the Fifth Circuit’s logic “endangers the funding of numerous other bank regulators, including the Fed, OCC, and FDIC, which monitor our entire financial system.” Possibly, if they were also insulated from political accountability in the same way. But they aren’t. The opinion also stresses that these agencies don’t wield “enforcement or regulatory authority remotely comparable to the authority the [bureau] may exercise throughout the economy.”

The Senator denounced the “extreme right-wing” judges who wrote the opinion—an attack on the political motives of judges that she may have learned from Donald Trump. But those same judges rejected the plaintiffs’ other arguments that the payday lending rule violates the Administrative Procedure Act and the Constitution’s nondelegation doctrine. We’d have ruled with the plaintiffs on those issues too, but the judges were hardly acting like a partisan wrecking crew.


The CFPB ruling continues the trend of originalist judges attempting to restore the proper understanding of the Constitution’s separation of powers. This means reining in the administrative state and requiring Congress to reassert its powers in writing laws with specificity and funding the government.

In creating the CFPB, Congress abdicated its duty and created an agency that has too much unaccountable power. The Fifth Circuit has done its duty to call out the CFPB as Congress’s illegitimate child.