Consumer Financial Protection Bureau v. Community Financial Services Association
In the latest installment of "Court Briefs," Kannon Shanmugam, along with Abigail Frisch Vice and Brian Lipshutz, delves into the Supreme Court's recent ruling in Consumer Financial Protection Bureau v. Community Financial Services Association.
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Kannon Shanmugam: Welcome to “Court Briefs,” a podcast from Paul, Weiss. I'm your host, Kannon Shanmugam, the chair of the firm's Supreme Court and Appellate Litigation Practice and co-chair of our Litigation Department. In this podcast, we analyze Supreme Court decisions of interest to the business community.
We're actually coming to you today from Birmingham, Alabama, where we just got out of an oral argument in the 11th Circuit, and I'm joined by two of my colleagues from the Supreme Court and Appellate Practice, Abby Vice and Brian Lipshutz, to talk about the Supreme Court's recent decision in a case called Consumer Financial Protection Bureau v. Community Financial Services Association, or CFPB v. CFSA for short. This is actually the second constitutional challenge to the structure of the CFPB. In a case called Seila Law v. CFPB, which we litigated here at Paul, Weiss, the Supreme Court invalidated Congress's limitations on the removal of the director of the CFPB. This case is kind of the sequel to Seila Law, and Abby, tell us a little bit about the facts of the case.
Abigail Frisch Vice: Absolutely. Well, in the wake of the 2008 financial crisis, Congress enacted a new agency, the CFPB, and sought to insulate it from the political process. And it did that by providing an unusual funding mechanism that was outside the ordinary annual appropriations process. And that mechanism is that every year, the CFPB director requests from the Federal Reserve Board earnings, and this is statutory language, in the amount determined by the director to be reasonably necessary to carry out the CFPB's duties. And then Congress provided a statutory cap, that in 2022, amounted to $734 million. And in addition to that, the CFPB can retain and invest unused funds year over year.
So, the plaintiff CFSA is a trade association, and it represents payday lenders and credit access businesses, and they challenged the CFPB's payday lending rule. They argued that the funding mechanism violates the Appropriations Clause of the U.S. Constitution. And that clause says that no money shall be drawn from the Treasury, but in consequence of appropriations made by law. And the Fifth Circuit held that the unusual funding model violated the Appropriations Clause by giving the agency a self-actualizing perpetual funding mechanism.
Kannon Shanmugam: So, I think many observers thought that this was going to be an uphill fight before the Supreme Court, and so it proved. Brian, tell us a little bit about what the court did.
Brian Lipshutz: By a vote of seven to two, in an opinion by Justice Thomas, the court held that the CFPB's funding structure complied with the Appropriations Clause. The court relied on constitutional text, pre-enactment history and early congressional practice. The court then concluded that appropriations need only identify a source of public funds and authorize the expenditure of those funds for designated purposes. There were three other opinions in the case. First, Justice Kagan filed a concurring opinion joined by Justices Sotomayor, Kavanaugh and Barrett, and Justice Kagan argued that a continuing tradition also supported the majority's conclusion. Justice Jackson filed a separate concurring opinion. Although she joined the majority opinion, she expressed her view that she would have decided the case on narrower grounds. Finally, Justice Alito dissented in an opinion joined by Justice Gorsuch. He faulted the court for several things, including failing to place a temporal limitation on the length of an appropriation and for failing to place a ceiling on the amount that can be withdrawn from the Treasury by the CFPB.
Kannon Shanmugam: So again, a 7-2 decision with Justice Thomas on one side and Justice Alito on the other. A very interesting lineup of Justices. Abby and Brian, let me ask you about the implications of this decision. And Abby, let me start with you. Tell us a little bit about what this means for the short term for the CFPB.
Abigail Frisch Vice: Sure. Well, the CFPB has been very active under the Biden administration, so there are many pending cases challenging those regulatory actions. And in some courts have granted interim relief, pending the outcome of this case. In others, courts have paused awaiting the Supreme Court's decision here. So, those cases will all now move forward.
Kannon Shanmugam: And Brian, what does this mean more broadly for constitutional challenges to other agencies and for potential future challenges to the CFPB?
Brian Lipshutz: Although this test is fairly expansive in the power that it gives to Congress, there certainly could be other appropriation schemes in the future that would not pass the test. In particular, the requirement that Congress authorize the expenditure of funds for designated purposes. And with respect to the CFPB itself, as the court noted, there could be other challenges based on Congress's authority to create and fund an administrative agency, and those might include a challenge to Congress's authority to regulate certain areas of consumer protection law in the first place, or Congress's delegation of certain powers to the CFPB.
Kannon Shanmugam: Great. Thank you, Brian and Abby, for breaking down that interesting case. And if you have any questions about the case, please feel free to contact any of us. For more information about Paul, Weiss's Supreme Court and Appellate Litigation Practice, please visit us at our website, paulweiss.com. And please subscribe to “Court Briefs” wherever you listen to your podcasts. Until next time, thank you for joining us and take care.
