Supreme Court to Consider Constitutionality of CFPB Funding

The Supreme Court ("SCOTUS") will review a United States Court of Appeals for the Fifth Circuit (the "Fifth Circuit") ruling that the CFPB "funding mechanism" violates the Constitution's separation of powers clause.

The Fifth Circuit took issue with the CFPB's unique funding provision, arguing that unlike other independent executive agencies, the CFPB is not funded through periodic congressional appropriations but rather through a funding mechanism directly from the Federal Reserve. (Note: annually, the CFPB's director requests funding that is reasonably necessary to carry out its agency functions, not to exceed 12 percent of the Federal Reserve's total operating expenses.) The Fifth Circuit ruled that this funding structure violates the Constitution's Appropriations Clause as well as the Constitution's underlying separation of powers.

As previously covered, on November 14, 2022, the CFPB filed a petition for a writ of certiorari with SCOTUS appealing a decision by the Fifth Circuit. On February 27, 2023, SCOTUS granted the CFPB's petition. The question before SCOTUS is "whether the Court of Appeals erred in holding that the statute providing funding to the CFPB, 12 U.S.C. 5497, violates the Appropriations Clause, U.S. Const. Art. I, § 9, Cl. 7, and in vacating a regulation promulgated at a time when the CFPB was receiving such funding."

Ranking U.S. Senate Banking Committee Member Tim Scott (R-SC) issued the following statement in response to SCOTUS' decision: "The CFPB has long been an agency that lacks transparency and seeks to operate beyond its jurisdiction. I look forward to reviewing the Supreme Court’s decision, when the time comes, and continuing my efforts to hold the CFPB accountable to the American people and Congress."