Supreme Court Rules CFPB Funding Mechanism Constitutional

The Supreme Court ruled Thursday (May 16) that the Consumer Financial Protection Bureau’s funding mechanism is constitutional.

The decision reversed a lower court ruling that threatened the very existence of the agency.

Seven justices concurred with the decision, while two dissented.

“The statute that authorizes the bureau to draw money from the combined earnings of the Federal Reserve System to carry out its duties satisfies the appropriations clause,” Justice Clarence Thomas wrote in the opinion of the court. “Accordingly, we reverse the judgment of the Court of Appeals and remand the case for further proceedings consistent with this opinion.”

CFPB Director Rohit Chopra said in a statement Thursday that the Supreme Court’s decision rejected a “radical theory that would have devastated the American financial markets” and “made it clear that the CFPB 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,” Chopra said in the statement. “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.”

The Supreme Court’s decision determined whether the CFPB could exist at all. As PYMNTS reported Tuesday (May 14), the original lawsuit argued that the agency’s funding was and is unconstitutional.

The original lawsuit was filed by the Community Financial Services Association of America and the Consumer Service Alliance of Texas and wound its way through various appeals and rulings before landing in the Supreme Court’s hands.

At the end of 2022, the U.S. Court of Appeals for the Fifth Circuit ruled the CFPB’s funding mechanism is unconstitutional and violates the appropriations clause.

Had the Supreme Court ruled that the funding mechanism was indeed unconstitutional, it’s conceivable that the CFPB’s enforcement actions stretching back years also would have been unconstitutional.

An opponent of the Supreme Court’s decision, House Financial Services Committee Chairman Patrick McHenry, said Thursday in a statement that the decision is a “setback” but “Republicans will continue the fight to rein in the rogue CFPB.”

McHenry urged the House to immediately take up the CFPB Transparency and Accountability Reform Act.

“It’s past time the CFPB is held accountable to the American people through their elected representatives,” McHenry said in the statement.