The Consumer Financial Protection Board, The Appropriations Clause and The Administrative State

Last week the Supreme Court upheld the constitutionality of the CFPB and its funding mechanism.  This was one of the main decisions impacting the attack on the administrative state going on at the Supreme Court this term.  This one was a win for the regulators. 

The CFPB’s funding mechanism falls outside the year-over-year appropriations process that characterizes the main part of the federal budget.  The CFPB gets multi-year funding from the Federal Reserve, subject to an annual cap created when it was founded which is subject to an inflation adjustment.  Red Team groups attacked this under the Appropriations Clause.  Their goal was clearly to put the CFPB in the political crosshairs each year, hoping that annual opposition might kill the agency.  

The Supreme Court ruled, however, that this funding mechanism is constitutional.  The vote was 7-2.  Justices Gorsuch and Alito dissented.  Justice Thomas wrote the main opinion. 

In his opinion, Justice Thomas flagged several ways in which similar funding mechanisms were used in the early days of the republic, and even going back to Merrie Olde England and Parliament’s practices under the kings.  In this fashion he asserted he was relying on the original intent of the Appropriations Clause.  He pointed out items such as dedicated customs funds or how the early expenses of the Post Office were funded.  The canals were treated similarly. 

In a concurring opinion, Justice Kagan pointed out more current examples of dedicated funding sources than those that existed at the time of the founding.  No doubt she was satisfied with the result, but wanted to avoid getting caught in Thomas’s trap of seeming to agree that unless a particular practice was in place at the time of adoption of the Constitution it couldn’t be a part of the original intent and therefore might be UNconstitutional. 

In dissent, Justice Gorsuch took a very different read of what happened during our country’s earliest days, showing how bad Supreme Court justices are at being amateur historians; how prevalent confirmation bias and selectivity are in their supposed “historical” examples; and therefore what a mistake it is to adopt the purported “originalist” approach to constitutional interpretation.  Justice Thomas’s examples weren’t necessarily all that persuasive either, as the country has evolved so substantially in the last almost quarter of a millennium.  Why should we put ourselves in a straitjacket of requiring something to have occurred back in the 1700s for it to be valid today?  

If this case had gone the other way, and the CFPB were declared invalid, there would have been many questions concerning the effectiveness of the many regulations it has issued over the past roughly two decades that it has been in existence.  But the CFPB and its funding mechanism have been upheld, and with it its regulations and regulatory structure.  Score one for the administrative state. 

While the CFPB survives, of course it is still subject to election results.  If Trump wins in November, he will no doubt put someone in as CFPB chair who will be generally hostile to the agency’s mission and will look to carve back its regulations, just as Mick Mulvaney did when he chaired the CFPB during the last Trump administration.  He chaired the CFPB while simultaneously heading the Office of Management and Budget, or OMB, and then serving as Trump’s chief of staff, showing the low regard he held for the CFPB by the limited time he devoted to that role. 

Unspoken in the Supreme Court’s opinion, and also not apparently raised in the oral arguments or the briefs, are what the impact of a contrary decision might have been on Social Security and Medicare.  Both of those systems are funded from a trust, with dedicated payroll taxes that cover not just a number of years, but across generations.  If the CFPB and its funding mechanism were invalidated, then Social Security and Medicare might be invalid too.  It’s not clear that the Supreme Court, or the CFPB’s challengers, ever once thought about that possible implication. 

There are more administrative law decisions coming up in the next six weeks, including Loper, the fishing case that challenges the Chevron deference doctrine, and Jarkesy, challenging the SEC’s administrative courts.  And that’s not to mention the environmental cases.  I predicted last fall that this current Supreme Court term would have a major impact on seemingly boring, but important, issues of administrative law.  While the Trump Insurrection Clause and immunity cases may have taken a lot of the attention away from the Court’s administrative law docket, that docket is still an important part of the themes for this term at the Supreme Court. 

                                                                                     Richard P. Swanson 

                                                                                     President-Elect, NYCLA 

The views expressed here are those of the author, and do not necessarily represent or reflect the views of NYCLA, its affiliates, its officers, or its Board.