The Supreme Court begins its October 2023 term today. The cases on its merits docket so far put the structural Constitution at center stage. The Court will hear oral argument tomorrow in a key separation of powers case, Consumer Financial Protection Bureau v. Community Financial Services Association of America, involving a challenge to a foundational component of the CFPB.
The Dodd-Frank Act of 2010 created the CFPB to be an independent financial regulator with vast enforcement powers. Congress designed its funding mechanism to be impervious to being “compromised by political maneuvering,” in Senator Chris Dodd’s words. Why be subject to that pesky process of congressional oversight to determine future appropriations? The agency is funded in an amount of its own choosing from the Federal Reserve—subject only to a cap—in perpetuity. The cap is an illusory one, so high that it regularly exceeds the agency’s own assessment of its needs—initially nearly $600 million, or 12% of the Federal Reserve’s total operating expenses, and recently almost $750 million with an inflation adjustment.
The Constitution’s Appropriations Clause provides that “[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Congress, in other words, has the power of the purse. But here Congress abdicated that responsibility. The CFPB’s funding mechanism is the subject of the pending challenge by associations of regulated lenders, in an effort to invalidate an agency rule that regulated lenders’ preauthorized attempts to withdraw loan repayments from consumers’ bank accounts. The lenders were successful in the Fifth Circuit.
This case will not be the first time Dodd-Frank’s blueprint for the CFPB was challenged in the Supreme Court. In Seila Law LLC v. Consumer Financial Protection Bureau (2020), the Court struck down Dodd-Frank’s designation of the director of the CFPB, who held extensive executive authority, as removable by president only for cause. That breached the principle that the Constitution allows the president to remove principal officers in the executive branch at will.
In the present case, the Fifth Circuit called the CFPB “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,’” quoting Alexander Hamilton.
The separation of powers dividing the federal government’s authority among three coequal branches is essential to the preservation of freedom. Of the issue now before the Court, James Madison maintained in The Federalist Papers, “This power over the purse may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure.” But the Founders’ paradigm has long been challenged by the rise of administrative agencies that effectively seize legislative and judicial power for themselves while having limited accountability to elected officials. Dodd-Frank’s creation of the CFPB shows just how far the modern Congress has strayed from first principles. There is no limiting principle behind its funding scheme that would prevent Congress from broadly delegating the appropriating authority that belongs to it alone.
Hopefully the Court, with its renewed zeal for first principles, will once again put the CFPB in its place. Doing so would be an act not of judicial aggrandizement, but of empowerment of a responsibility-shirking Congress, whether its members want to meet their constitutional obligations or not. In the process, the ultimate beneficiaries would be the people they represent, who deserve better than to be governed by permanent and unaccountable bureaucracies.