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Appeals court rules CFPB funding source unconstitutional

The decision comes on the heels of other recent challenges to the Bureau’s constitutionality

The Fifth Circuit U.S. Court of Appeals found this week that the funding source for the Consumer Financial Protection Bureau (CFPB) is unconstitutional, according to a decision reached by a three-judge panel.

The panel found that the “design of the CFPB violated the Constitution because it receives funding through the Federal Reserve, rather than appropriations legislation passed by Congress,” reads a story on the decision by Politico. “Democrats established the structure when they created the CFPB in the 2010 Dodd-Frank law as a way to shield the bureau from political pressures that could impact its oversight of the finance industry.”

The panel also vacated a small-dollar lending rule that was enacted in 2017, which had been targeted by payday lending advocates.

The plaintiffs, the Community Financial Services Association of America and Consumer Service Alliance of Texas, argued the CFPB’s payday rule was made arbitrarily and capriciously, and exceeded its statutory authority.

The plaintiffs also challenged the CFPB’s structure, its powers granted by Congress, the director’s protections from removal, claiming they were all unconstitutional.

“Congress’s decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers,” the judges wrote.


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The CFPB itself has thus far declined to say whether it will attempt to appeal the decision. However, a CFPB spokesperson told Politico that the ongoing work of the agency will remain unaffected for the foreseeable future.

“[T]here is nothing novel or unusual about Congress’s decision to fund the CFPB outside of annual spending bills,” said CFPB spokesperson Sam Gilford. “Other federal financial regulators and the entire Federal Reserve System are funded that way, and programs such as Medicare and Social Security are funded outside of the annual appropriations process. The CFPB will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers.”

In mid-2020, the United States Supreme Court heard another challenge to the constitutionality of the CFPB and found that while its single-director structure insulating an installed director from firing by the president was unconstitutional, the agency itself would remain intact. This helped lead President Biden to seek the appointment of his own CFPB director upon entering office, and a similar decision swiftly followed from the Supreme Court related to the Federal Housing Finance Agency.

The CFPB currently maintains regulatory enforcement authority over independent mortgage banks, depositories, fintechs and the reverse mortgage industry at the national level.

James Kleimann contributed reporting.

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