Federal Appeals Court Rules CFPB Funding Structure Unconstitutional

October 20, 2022

A panel of judges on the U.S. Court of Appeals for the Fifth Circuit on Oct. 19 ruled that the Consumer Financial Protection Bureau’s (CFPB) funding structure was unconstitutional.

The panel found the CFPB’s funding structure violated the Constitution’s doctrine of separation of powers, which sets the authority of the three branches of government. Congress has the sole power of the federal purse, and the bureau’s funding structure undercuts that authority, the court said.

“An expansive executive agency insulated (no, double-insulated) from Congress’s purse strings, expressly exempt from budgetary review, and headed by a single Director removable at the President’s pleasure is the epitome of the unification of the purse and the sword in the executive—an abomination the Framers warned ‘would destroy that division of powers on which political liberty is founded,’” the judges wrote.

CFPB is expected to request a stay and petition the Fifth Circuit for an en banc review of the decision. The case could eventually be heard by the U.S. Supreme Court.

“The near-term implications of this decision are limited,” according to Isaac Boltansky, director of policy research at financial-services firm BTIG. Over the long-term, Boltanksy believes the current composition of the Supreme Court suggests that the Fifth Circuit’s reasoning could stand.

Under the Dodd-Frank Act, the CFPB is authorized to request funding from the Federal Reserve of up to 12% of the Fed’s total operating expenses. In fiscal year 2021, the CFPB’s budget of $598 million supported 1,557 full-time employees. The bureau expects those figures to rise by 22% and 9%, respectively, in fiscal year 2023. If the decision holds through appeal, the Bureau would be forced into the Congressional appropriations process.

In 2020, the U.S. Supreme Court ruled the bureau’s single director structure was unconstitutional and that the director could be removed by the U.S. president “at will.” For several years, ALTA has endorsed a multi-member commission as the most effective form of governance for the bureau.

Contact ALTA at 202-296-3671 or communications@alta.org.