The Supreme Court has delivered a victory for a financial watchdog, and all agencies with alternative funding

A federal financial industry watchdog can continue to operate and maintain its current funding structure, the Supreme Court ruled on Thursday, averting a potential crisis for the agency and others with alternative appropriations mechanisms. 

The Consumer Financial Protection Bureau faced an existential threat as the members of the payday loan industry it regulates argued its funding setup was unconstitutional. A 7-2 majority on the top court rejected that argument, saying instead the bureau’s structure is not unusual and in line with many arrangements agencies have enjoyed since the nation’s founding. 

CFPB v. Community Financial Services Association of America reached the Supreme Court after a three-judge panel—all appointed by President Trump—for the U.S. Court of Appeals for the Fifth Circuit ruled in 2022 that CFPB’s funding through the Federal Reserve instead of appropriations from Congress violates the U.S. Constitution’s separation of powers. The government then appealed to the Supreme Court. In the meantime, a federal district judge has placed an injunction on one of the bureau’s recent regulations, citing the Fifth Circuit’s decision.  

In an opinion written by Associate Justice Clarence Thomas, the court ruled CFPB’s funding mechanisms do not violate the limitations on appropriations set forth in the Constitution. Congress has funded many agencies by allowing them to indefinitely access funds, the court said, pointing to the original Post Office and fee-funded Customs Service as the original examples. 

“Congress took even more flexible approaches to appropriations for several early executive agencies and allowed the agencies to indefinitely fund themselves directly from revenue collected,” Thomas wrote. 

The Biden administration had argued CFPB’s funding is no different than modern agencies like the Federal Deposit Insurance Company, the Farm Credit Administration, the Federal Housing Finance Agency and others. It and various stakeholders and advocacy groups had cautioned that a decision against CFPB could put those agencies in jeopardy as well. 

In a statement, CFPB called the decision a “resounding victory for American victories and honest American businesses alike” and said it ensures the bureau is “here to stay.” 

“This ruling upholds the fact that the CFPB’s funding structure is not novel or unusual, but in fact an essential part of the nation’s financial regulatory system, providing stability and continuity for the agencies and the system as a whole,” the agency said. “As we have done since our inception, the CFPB will continue carrying out the vital consumer protection work Congress charged us to perform for the American people.”

President Biden said the decision would protect CFPB against political attacks and allow it continue its work that led to $9 billion in consumer relief and $20 billion in annual reductions to "junk fees." 

“In the face of years of attacks from extreme Republicans and special interests, the Court made clear that the CFPB’s funding authority is constitutional and that its strong record of consumer protection will not be undone,” Biden said. 

The plaintiffs argued CFPB was creating a “blueprint for destroying the separation of powers, and that it invites tyranny by allowing the executive to operate free of any meaningful fiscal check.” The court countered, however, that Congress can authorize alternative funding mechanisms as long as it is spelled out in law. In a concurring opinion, Associate Justice Elena Kagan noted no banking regulator is funded by the standard appropriations process. 

Associate Justice Samuel Alito wrote a dissenting opinion, arguing the majority signed off on allowing CFPB to “bankroll its own agenda without any congressional control or oversight.”

The bureau has been subject to various other legal challenges since the Obama administration stood up the agency in 2011 following the 2010 Dodd-Frank Act. The Supreme Court ruled in 2020 that the removal protections for the CFPB director were unconstitutional and said the president could remove the individual at will, but allowed the agency itself to stand.

Rob Nichols, president of the American Bankers Association, said CFPB has flouted its statutory authority and vowed to continue to push back on the bureau's efforts despite Thursday's court decision. 

“ABA will also continue to call on Congress to establish more accountability for the bureau,” Nichols said. “Only by placing limits on this rogue regulator can we ensure that consumers are truly protected and that banks can continue to provide them with the financial products they want and need.”

Rakim H.D. Brooks, president of the Alliance for Justice, said the decision would enable CFPB's work to limit "corporate abuse and greed" to continue. 

“It was specifically funded in a distinct way to ensure against political meddling, which is why we’ve seen so many attempts to challenge it through the courts instead,” Brooks said. “Today’s ruling confirms just how flimsy these challenges are and guarantees that the CFPB’s work can continue.”