2nd Circuit Court of Appeals Finds CFPB Funding Constitutional

A ruling from the 2nd Circuit Court of Appeals in New York on the CFPB has reignited debate over the agency's role and funding scheme. Learn why.

David Baumann


Mar 24



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David Baumann

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David Baumann

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Ruling highlights debate over agency funding scheme with Supreme Court set to hear case this fall.

In a decision that sharply differed from another appeals court ruling, the 2nd Circuit Court of Appeals ruled Thursday that the manner in which the CFPB is funded is constitutional.

“Because the CFPB’s funding structure was authorized by Congress and bound by specific statutory provisions, we find that the CFPB’s funding structure does not offend the Appropriations Clause,” the appeals court ruled.

In October of last year, the 5th Circuit Court of Appeals ruled just the opposite, finding that because the CFPB is not funded through the appropriations process, its funding is unconstitutional.

“As a threshold matter, we cannot find any support for the Fifth Circuit’s conclusion in Supreme Court precedent,” the 2nd Circuit said. “To the contrary, the Court has consistently interpreted the Appropriations Clause to mean simply that ‘the payment of money from the Treasury must be authorized by a statute.’”

Backstory and Context

The CFPB and its funding method were created as part of the Dodd-Frank Act.

The 2nd Circuit Court is located in New York City, while the 5th Circuit is located in New Orleans and is considered one of—if not the most—conservative courts in the U.S.

The U.S. Supreme Court has agreed to consider the CFPB’s appeal of the 5th Circuit’s ruling. While the Biden Administration had pressed the court to consider the case this Spring, it has decided to wait until its Fall session to hear oral arguments.

Inside the 2nd Circuit Case

In the 2nd Circuit case, the Law Offices of Crystal Moroney is challenging a CFPB civil investigative demand for documents. The law firm provides legal services to clients seeking to collect debts. The CFPB regulates debt collectors.

The firm argued, in part, that the civil demand should not be enforced because the bureau’s funding method was unconstitutional. The Supreme Court already has settled part of the firm’s argument when it decided in a previous case that the president may remove a CFPB director at any time.

What Happens Next?

The CFPB has been a political football since its creation. Republicans and financial services trade groups have said the agency is unaccountable and should be governed by a commission opposed to a single director.

On Wednesday, Senate Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, castigated bankers for not supporting the bureau and its work.

Speaking at the American Bankers Association’s Washington Summit, Brown said, “It’s disappointing that banks are attempting to take away one of consumers’ best resources to get their money back when they fall victim to financial scams and unfair fees. The CFPB has returned more than $16 billion directly to consumers.”

He added that if the Supreme Court finds the agency funding unconstitutional, it is not clear what will happen to funds that the bureau has been able to collect on behalf of consumers.

On Thursday, Brown said he was pleased with the 2nd Circuit ruling, stating, “The events of the past month have shown how important independently funded financial regulators are to a stable and healthy economy.”

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