Supreme Court to Take Up Case on Fate of Consumer Watchdog

WASHINGTON — The Supreme Court agreed on Monday to hear a case that could hobble the Consumer Financial Protection Bureau and advance a key project of the conservative legal movement: to limit the power of independent agencies.

A ruling against the bureau, created as part of the 2010 Dodd-Frank Act after the financial crisis, could cast doubt on every regulation and enforcement action it took in the dozen years of its existence.

The central question in the case, Consumer Financial Protection Bureau v. Community Financial Services Association of America, No. 22-448, is whether the way Congress chose to fund the agency violated the Appropriations Clause of the Constitution, which says that “no money shall be drawn from the Treasury, but in consequence of appropriations made by law.”

A unanimous three-judge panel of the U.S. Court of Appeals for the Fifth Circuit, in New Orleans, ruled in October that the bureau’s funding mechanism ran afoul of that clause.

“Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it,” Judge Cory T. Wilson wrote in an opinion joined by Judges Don R. Willett and Kurt D. Engelhardt in the ruling. President Donald J. Trump appointed all three judges on the panel.

The bureau is funded by the Federal Reserve System, in an amount determined by the bureau so long as it does not exceed 12 percent of the system’s operating expenses. In the 2022 fiscal year, the agency requested and received $641.5 million of the $734 million available. The 2010 law said the bureau’s funding requests “shall not be subject to review by” the House and Senate Appropriations Committees.

The Fifth Circuit’s decision was at odds with ones from other courts. In 2018, for instance, the District of Columbia Circuit said there was nothing unusual about the funding mechanism.

In urging the Supreme Court to hear the Biden administration’s appeal, Solicitor General Elizabeth B. Prelogar said the ruling “threatens to inflict immense legal and practical harms on the C.F.P.B., consumers and the nation’s financial sector.”

In 2020, the Supreme Court ruled that a different part of the law creating the agency was unconstitutional, saying that Congress could not insulate the bureau’s director from presidential oversight given the scope of the job’s authority.

“The director has the sole responsibility to administer 19 separate consumer-protection statutes that cover everything from credit cards and car payments to mortgages and student loans,” Chief Justice John G. Roberts Jr. wrote for the majority.

He mentioned the bureau’s funding in passing, noting that its budget had exceeded half a billion dollars in recent years.

“Unlike most other agencies,” the chief justice wrote, “the C.F.P.B. does not rely on the annual appropriations process for funding. Instead, the C.F.P.B. receives funding directly from the Federal Reserve, which is itself funded outside the appropriations process through bank assessments.”

Chief Justice Roberts made the same point when the case was argued. “They don’t even have to go to Congress to get their money,” he said.

In the administration’s petition seeking review, Ms. Prelogar wrote that “the C.F.P.B.’s funding mechanism is entirely consistent with the text of the Appropriations Clause, with longstanding practice and with this court’s precedent.”

She added that barring congressional committees from reviewing the funding “simply allocates authority among different congressional bodies” and that “the Appropriations Clause is not concerned with such matters of internal congressional housekeeping.”

The case was brought by two trade groups representing payday lenders. They challenged a regulation limiting the number of times lenders can try to withdraw funds from borrowers’ bank accounts. The Fifth Circuit struck down the regulation, saying it was “wholly drawn through the agency’s unconstitutional funding scheme.”