Supreme Court to Decide CFPB’s Validity

Blogs, Financial Services Perspectives

Author(s) ,


Less than three years after the U.S. Supreme Court reviewed the CFPB’s appointment structure, the bureau again finds itself before the Court in what could prove the most consequential case for the financial services industry in years. Four months ago, the Fifth Circuit Court of Appeals issued a decision in Community Financial Services Association of America v. CFPB (previously covered here) holding the CFPB’s proposed Small-Dollar Rule invalid on the ground that the bureau’s funding mechanism violates the Appropriations Clause of the U.S. Constitution. The CFPB promptly filed a petition for writ of certiorari, and the Supreme Court granted the petition yesterday.

The case will present a two-part question. First, was the Fifth Circuit correct to hold the CFPB’s mechanism for funding (which comes from the Federal Reserve, rather than regular congressional bills, and is not subject to annual review by congressional committees), in violation of the Appropriations Clause? Second, if the CFPB’s funding mechanism is unconstitutional, did the Fifth Circuit grant the appropriate relief in ordering the Small-Dollar Rule to be vacated?

The Supreme Court declined to take up two questions raised in a cross-petition by the CFPB’s opponent, the Community Financial Services Association of America: (1) Should the Small-Dollar Rule be vacated because it was promulgated by a CFPB director while he was impermissibly shielded from removal by the president, and (2) was the rule invalid because it exceeded the CFPB’s authority to regulate unfair or abusive conduct? Also of note, the Supreme Court set the case for the fall calendar despite the CFPB’s request to fast-track the matter for decision by June 2023.

The Appropriations Clause challenge that will be considered by the Supreme Court found its first success before the Fifth Circuit following rejections by the D.C. Circuit and five federal district courts. However, despite the weight of lower court opinion going against it, the challenge may find a favorable reception among the originalist majority of the Supreme Court as part of a shift toward heightened scrutiny of regulatory agencies on separation of powers issues.

As to the consequences of a decision affirming the Fifth Circuit? While the “nuclear option” – a decision declaring the CFPB and every regulation promulgated in the bureau’s decade-plus existence to be invalid – will be at the front of the financial services industry’s minds, even Supreme Court justices inclined to agree with the Fifth Circuit will no doubt grapple with the practical consequences of any decision.

Oral arguments on the CFPB case likely will be held in the fall, and we can expect a decision sometime in 2024. Follow our Financial Services Perspectives blog for updates, as the financial services industry may never again have so much interest in a rarely litigated constitutional provision.