The Appropriations Clause and the CFPB Funding Debate

The power of the purse is one of the most powerful checks Congress has on the Executive Branch. A landmark Supreme Court case, OPM v. Richmond, underscored the importance of the Appropriations Clause in upholding the integrity of government spending. However, recent controversies surrounding the Consumer Financial Protection Bureau's (CFPB) funding mechanisms have thrust this constitutional provision into the spotlight once again.

I was proud to recently join a bicameral group of over 130 members of Congress in filing an amicus curiae brief to the Supreme Court urging the Court to uphold the Fifth Circuit’s decision that the CFPB’s funding structure is unconstitutional and to make the Bureau’s funding subject to Congressional appropriations.

As some background, the Appropriations Clause, rooted in Article I of the Constitution, empowers Congress to authorize the expenditure of public funds. This authority serves as a safeguard to prevent unaccountable bureaucrats and agencies from running up the government tab at the expense of taxpayers. The OPM casenoted that public funds should be directed based on the difficult judgments made by Congress, reflecting the common good of the nation.

Fast forward to today—despite the Appropriations Clause, the CFPB and its funding mechanisms, as outlined in the Dodd-Frank Act, has run contrary to this very clause and authority. The Dodd-Frank Act gave the CFPB the authority to determine its funding needs entirely by itself, giving the Director unilateral decision-making on its funding in perpetuity and insulating the agency from Congress's oversight.

The CFPB’s funding mechanism differs from that of other financial markets regulators, including the Federal Trade Commission, the Commodity Futures Trading Commission, and the Securities and Exchange Commission, as well as the Federal banking agencies. While agencies like the Office of the Comptroller of the Currency and the U.S. Postal Service generate revenue through fees assessed on regulated entities, the CFPB relies on funds from the Federal Reserve System—an arrangement that allows the agency to bypass Congress. It's worth noting, the Fed does not exercise authority over the CFPB or its budget, and further, an automatic inflation adjustment and the agency's ability to carry over excess funds from year-to-year further dilute Congress's role in overseeing the agency's budget.

The CFPB’s funding structure as it stands completely undermines the separation of powers and allows the agency to function as a quasi-legislative body without direct accountability to the people’s house. On October 19, 2022, U.S. Court of Appeals for the Fifth Circuit held that the funding mechanism for the CFPB is unconstitutional and vacated the CFPB’s Payday Lending Rule as the product of the unconstitutional funding scheme. The Supreme Court will decide the case in 2024.

For an agency that was founded on the very premise of creating transparency, the CFPB strays far from the principles it preaches. We must uphold the principles upon which the nation's governance was founded and include the CFPB’s funding mechanism within the Appropriations Clause to restore accountability to this corner of government.