How Much Is Too Much? Oral Arguments in Much Anticipated CFPB Funding Case Leave Justices Wondering

Early in October, the Supreme Court heard oral arguments in Consumer Financial Protection Bureau v. Community Financial Services Association of America Ltd (CFPB v. CFSA). The appeal stems from a 2021 Western District of Texas ruling upholding the Payday Lending rule and the CFPB's funding structure, which the Fifth Circuit Court of Appeals later partially reversed. The Fifth Circuit held the CFPB's entire funding structure unconstitutional because "Congress's cession of its power of the purse to the Bureau violates the Appropriations Clause and the Constitution's underlying structural separation of powers[,]" and thereby vacated the Pay Day Lending Rule.

In arguing the constitutionality of the CFPB's funding structure, the Solicitor General, Elizabeth Prelogar, relied upon three key pillars of her argument: 1) the constitutional text; 2) the historical funding structures of other executive agencies; and 3) past precedent. The CFPB's argument cession of its power of the purse to pursue to the Bureau violates the Appropriations Clause authorizing Congress to establish a "specified amount of funds from a specified source for specified purposes…and nothing more." The Solicitor General emphasized that Congress created a constitutional funding mechanism by setting forth the source of the funds, which is the Federal Reserve Board, and the specific amount (whatever is "reasonably necessary" to carry out the Bureau's function, not to exceed a statutory cap).

The CFPB currently receives annual funding "from the combined earnings of the Federal Reserve System, the amount determined by the director to be reasonably necessary to carry out the authorities of the Bureau under Federal consumer financial law[.]" 12 U.S.C. § 5497(a)(1). Annual funding is capped at 12 percent of the total operating expenses of the Federal Reserve System, as reported in the Annual Report. As it stands now, that cap is approximately $600 million annually.

In response, the CFSA argued the text of the Appropriations Clause requires Congress to determine the specific amount that should be spent by an executive agency as opposed to allowing the executive branch to limitlessly spend "whatever it deems necessary." While the CFSA's counsel, Noel Francisco, appeared to concede that the existence of a cap may not invalidate a funding structure on its own, he argued that $600 million is excessively high, which renders it illusory or "almost irrelevant."

Numerous justices questioned both sides on the limits of the appropriations clause. Justice Kagan asked the Solicitor General to address the limits of standing appropriations, asking if an appropriation of "up to a quadrillion dollars" would be constitutional. Prelogar responded in the affirmative but insisted, "That's a question for a different day." Prelogar later argued that $600 million is not an unreachable cap and that the trajectory of the CFPB's annual spending indicates the CFPB may very well need to ask Congress to increase the cap in the future, which Congress has the power to grant or deny. Caps for other executive agencies are significantly higher.

Keeping with the theme of testing the bounds of the appropriations clause, Justice Kavanaugh received confirmation from Prelogar that a funding scheme "that Congress cannot alter for 100 years" would be unconstitutional. Justice Barrett similarly asked the CFSA's counsel, "What is the standard then? How do you decide how much is too much?" Francisco returned to the position that to determine an appropriate spending amount, you have to "look at it from the front end." He argued Congress has to "ma[ke] a determination as to what the amount should be." To uphold the separation of powers in the context of appropriations, Congress cannot delegate to the executive branch the authority to determine how much to spend because it violates the non-delegation doctrine. Such delegation is "particularly problematic" because it eliminates Congress's "obligation and duty to check the executive."

Justice Barrett noted that standard appropriations are not unconstitutional and asked Francisco, "How long before it becomes a problem?" Francisco returned to the point that while a long-standing appropriation is not necessarily unconstitutional – here, it "is a perpetual delegation to pick your number." Justice Kavanaugh pushed back on using the word "perpetual" and noted that Congress has the power to change the funding cap and that there is "nothing permanent about this." Francisco argued in response that while Congress can change the cap, delegating to the executive branch the authority to set the spending amount does not comply with a separation of powers.

The parties were at odds on historical precedent rooted in other federal agencies. Prelogar argued that the Customs and Border Protection agency is the best historical example supporting the CFPB's structure both in its funding mechanism and because it was authorized to levy fines and penalties on matters of national import. But Francisco, in turn, argued that the CFPB's funding structure is, in fact, novel and that while other agencies may have comparative elements, no other agency has all of the factors at issue here, denying that the Customs and Border Protection agency received funding in the manner Prelogar described.

As to the all-important questions surrounding remedies, the few questions posed directly asked the parties' perspectives on severability. Justice Sotomayor pressed, "We don't throw out the baby with the bath water; tell me what the bath water is." Francisco responded, "This should be back in Congress's court." However, he noted that the CFSA would not oppose a stay on the Court's order to allow time for Congress to rewrite the funding structure. On the other hand, Prelogar urged the Court to sever the funding provisions as it had done in its Seila Law decision.

Overall, neither party could succinctly pinpoint the limits of the Appropriations Clause, with the CFPB arguing that identifying such limits was unnecessary for the Court to decide in their favor. No matter the outcome, a narrow ruling seems likely.