Supreme Court rejects broad challenge to Consumer Financial Protection Bureau

The Supreme Court on Thursday rejected a broad challenge to the Consumer Financial Protection Bureau, reversing a lower-court ruling that would have undermined the watchdog agency created by Congress 12 years ago.

The CFPB case is one of several the Supreme Court heard this term that challenge the power of federal agencies, long a target of conservatives concerned about regulation and government bureaucrats whom they see as unaccountable to the public. In a 7-2 decision written by Justice Clarence Thomas, the court upheld as constitutional the bureau’s funding mechanism, which is based on profit from the Federal Reserve, rather than an annual appropriation.

Two other conservative justices, Neil M. Gorsuch and Samuel A. Alito Jr., dissented, saying the ruling would allow for unlimited spending by the agency without oversight from Congress.

“There is apparently nothing wrong with a law that empowers the Executive to draw as much money as it wants from any identified source for any permissible purpose until the end of time,” Alito wrote in his dissent.

The case involved a decision by the conservative U.S. Court of Appeals for the 5th Circuit that said the funding mechanism Congress adopted to ensure the CFPB’s independence was unconstitutional. A panel of three judges, all nominated by President Donald Trump, ruled in 2022 that the mechanism violated the Constitution’s command requiring congressional appropriation of money. The decision said the agency’s insulation from congressional committees doubled the violation.

The Biden administration rejected 5th Circuit’s view, telling the justices that the Constitution bestowed the power of the purse to Congress but set few limits on how appropriations could be made. Upholding the appeals court decision could have implications for the funding of other regulatory agencies, the government said, including the Federal Reserve Board, and could even cast doubt on Social Security and payments to the national debt.

The CFPB said it has recovered more than $20 billion for consumers since it was created by Congress in response to the 2008 financial crisis, putting scattered federal consumer protections under one structure. Sen. Elizabeth Warren (D-Mass.), who at the time advised the Obama administration, played a lead role in the legislation.

The Dodd-Frank Wall Street Reform and Consumer Protection Act moved to insulate the CFPB from political influence by making the agency independent from Congress’s annual appropriation process. The agency instead is funded from the profits of the Federal Reserve, which itself is funded through bank assessments. The bureau’s budget may not exceed 12 percent of the Fed’s annual operating expenses. So far, the agency has not asked for all of its authorized budget in any given year.