Appeals court finds CFPB funding unconstitutional

An appeals court on Wednesday ruled that the Consumer Financial Protection Bureau’s funding mechanism is unconstitutional, in the latest legal blow to the agency's structure.

“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,” a three-judge panel of the 5th U.S. Circuit Court of Appeals ruled in a case brought by a payday lending group against the CFPB's 2017 payday lending rule.

The CFPB, which Democrats created in the 2010 Dodd-Frank law, is funded through the Federal Reserve rather than the congressional appropriations process.

“Even among self-funded agencies, the Bureau is unique,” Judge Cory Wilson wrote Wednesday. “The Bureau’s perpetual self-directed, double-insulated funding structure goes a significant step further than that enjoyed by the other agencies on offer.”

The agency did not immediately respond to a request for comment.

Congress gave the bureau its own funding stream in Dodd-Frank as a way to shield it from political pressures. Republicans have long opposed the setup, arguing that it makes the agency unaccountable.

The Supreme Court in 2020 ruled that another provision of the agency’s structure — a single director who could only be fired for cause, rather than at will, by the president — violated the Constitution’s separation of powers.