Consumer Financial Protection Bureau remains funded — weirdly

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We ought to be left a tad uneasy by Thursday’s 7-2 Supreme Court decision upholding the mechanism for funding the Consumer Financial Protection Bureau. The result isn’t wrong, and should even have been expected; but the implicit invitation to Congress to repeat the strange budgetary experiment ... well, that’s the worrisome part.

The CFPB was created in 2010 as part of Dodd-Frank, which granted the new agency broad authority over consumer finance, including enforcement of a new statute making it illegal for lenders “to engage in any unfair, deceptive, or abusive act or practice.” All quite sensible.

But controversy arose at once, centering around two unusual aspects of the agency. First, Dodd-Frank placed the CFPB under a single director, but also protected that director against presidential removal, a combination struck down by the Supreme Court in 2020. Second, the statute exempted the agency from the usual federal budget process. In fact, the agency need not go through Congress for money at all. Instead, the CFPB gets its cash by drawing from the Federal Reserve the amount the director deems “reasonably necessary to carry out” the agency’s work, subject to a cap set at an inflation-adjusted 12% of the Federal Reserve’s 2009 operating expenses.

Within these rules, the CFPB cannot be gainsaid by anyone — not Congress, the Fed or the president. That was the heart of the issue before the justices in Consumer Financial Protection Bureau v. Community Financial Services Association of America.

The case arose from a challenge by various lenders to a 2017 CFPB rule restricting high-interest consumer loans. In 2022, the U.S. Court of Appeals for the Fifth Circuit struck down the CFPB’s funding mechanism, holding that Congress had not complied with the Constitution’s requirement that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.”

So why worry?

The dissent by Justice Samuel Alito, joined by Justice Neil Gorsuch, mostly concerns itself with the same history, although Alito reads the key clause differently: “Its aim is to ensure that the people’s elected representatives monitor and control the expenditure of public funds and the projects they finance, and it imposes on Congress an important duty that it cannot sign away.”

This unwaivable duty, the dissent argues, is violated by what it labels the “novel scheme” through which the CFPB is funded. The many other agencies that draw on special funding for their budgetary needs — including the Postal Service, the Federal Deposit Insurance Corporation, and the Public Company Accounting Oversight Board — “are funded in whole or in part by fees charged those who make use of their services or are subject to their regulation.”

Why should this matter? The fear seems to be that with so unprecedented a lack of checks and balances, there’s no one to stop the agency from going on an uncontrollable regulation spree. The dissent offers examples, such as recent efforts by the CFPB to limit credit card late fees, or remove medical bills from credit reports, neither of which Congress has authorized. Whether these are good ideas or not, writes Alito, “Congress cannot control or monitor the CFPB’s use of funds to implement such changes.”

That’s a fair concern, but like so much in our broken government, it’s one that stems from Congress itself. The Senate and House, in establishing the agency, chose to go even further than usual in abandoning their work of making policy decisions. Of course we should be worried about this legislative dysfunction.

Nevertheless, the dissent is right in worrying about the floodgates. We live in an era when neither major political party seems much interested in the pursuit of regulatory restraint. Just consider, from a long list, the right’s newfound enthusiasm for imposing rules on campus and the left’s determination to upend labor-management relations.

It’s not at all crazy to imagine, with the CFPB’s funding method having found its way through the storm to constitutional safe harbor, some future Congress deciding that what the nation needs is more agencies with budgets that are beyond legislative control.

In which case the majority opinion, even if correct as a constitutional matter, could point the way to political farce.