On Tuesday, October 3, the Supreme Court heard oral arguments in Consumer Financial Protection Bureau v. Community Financial Services Association of America. Industry groups representing payday lenders (who have been affected by the CFPB’s rulemaking) brought a challenge arguing that the CFPB funding structure is unconstitutional under the Appropriations Clause. The outcome of the case could have big effects not just on the future of the CFPB itself, but on the economy, markets, and financial institutions more broadly. In this episode, two leading constitutional law scholars and Supreme Court experts—Brianne Gorod of the Constitutional Accountability Center, and Professor Jennifer Mascott of the Antonin Scalia Law School—join Center President and CEO Jeffrey Rosen to recap the oral arguments in the CFPB case, what questions or issues the justices were the most focused on, and predict how the Court might rule.
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Today’s episode was produced by Bill Pollock, Samson Mostashari, and Lana Ulrich. It was engineered by Bill Pollock. Research was provided by Lana Ulrich, Samson Mostashari, Cooper Smith, and Yara Daraiseh.
Participants
Brianne Gorod is the Constitutional Accountability Center’s chief counsel. Brianne joined CAC from private practice at O’Melveny & Myers (OMM), where she was counsel in the firm’s Supreme Court and appellate practice.
Jennifer Mascott is assistant professor of law and co-director of The C. Boyden Gray Center for the Study of the Administrative State at the Antonin Scalia Law School and she serves as a Supreme Court contributor for NBC News. She previously served as Deputy Assistant Attorney General in the Office of Legal Counsel within the U.S. Department of Justice.
Jeffrey Rosen is the president and CEO of the National Constitution Center, a nonpartisan nonprofit organization devoted to educating the public about the U.S. Constitution. Rosen is also a professor of law at The George Washington University Law School and a contributing editor of The Atlantic.
Additional Resources:
- CFPB v. CFSAA (oral argument transcript)
- Brianne Gorod/Constitutional Accountability Center, Amicus Brief in support of petitioners
- Jennifer Mascott/Separation of Power Clinic, Gray Center for the Study of the Administrative State, Amicus Brief of 132 members of Congress in support of respondents
- Seila Law v. CFPB (2020)
- Appropriations Clause, Interactive Constitution
Excerpt from interview: Jennifer Mascott discusses the Fifth Circuit’s reasoning to strike down the funding structure of the CFPB under the Appropriations Clause.
Jennifer Mascott: So the Fifth Circuit decided in this case that the funding structure of the CFPB did not comply with the constitution's restrictions or provision in the Appropriations Clause that all appropriations to be taken out of the Treasury are authorized by law. And so the Fifth Circuit essentially determined that because the funding structure, the CFPB's funding's coming out of the Federal Reserve Fund.
And Congress, in the Dodd-Frank Act, authorized the CFPB director to determine the amount of funding that would be reasonably necessary to come out of the Federal Reserve Fund. And so the concern, particularly highlighted by the Fifth Circuit, is that there's an intervening party there. This is not Congress directly instructing or telling the CFPB exactly how much to spend and why and on what.
But it's an indefinite authorization for the director as he deems reasonably necessary to take money out of the Federal Reserve Fund. Now, I'm not actually sure now that the arguments are before the Supreme Court, however, that the parties and the litigants before the court are focused on precisely the same aspects of the funding and the spending concerns of the Fifth Circuit.
In fact, it's hard to imagine after listening to Tuesday's oral argument that however the decision comes down, that it would be anywhere near as broad in some of its language as part of the Fifth Circuit's reasoning. There might be several reasons for that. I mean, first of all, obviously, the court's able to take a much closer look at this issue. Also, it only has in front of it the more crystallized question about the Appropriations Clause challenge. The Fifth Circuit had a number of challenges the parties had raised, although decided the case really just on this one aspect.
But a lot more arguments had been raised. And so the Fifth Circuit doesn't really go into as much depth, and of course, it doesn't have the benefit of nearly as much briefing as the Supreme Court Justices will get. But I think after Tuesday's argument and as the Constitutional Law Professor in my academic capacity looking at this, I do think you know the issues are more complex than they might appear if one is just looking at a quick summary of the Fifth Circuit decision. Because the terms of the clause require just that appropriations are made by kind of the Treasury bylaw, meaning Congress has a significant role.
And that's a point that Brianne's brief highlights quite a bit as the legislative supremacy here. We do have a law. We have a law enacted in the statutory code addressing how the CFPB's gonna get money. And so the real question, I guess, is structurally, and with the meaning of the word, "appropriation" the concept of how that's been understood, are there limitations or restrictions on how the law has to operate for it to count as a constitutionally meaningful appropriation? And that's really what the Justices were trying to explore on Tuesday with the advocates on both sides.
Excerpt from interview: Brianne Gorod explains Noel Francisco’s argument and whether it was compelling.
Jeffrey Rosen: …To what degree before the court did Noel Francisco appeal to these non-textual principles, either non-delegation, separation of powers, or good government and not text, history and tradition?
Brianne Gorod I think that definitely was part of Noel Francisco's argument. And I think you saw some pushback from the Justices who made the point that certainly, one could've structured our system differently. Maybe there are arguments that it should be structured differently. But it's not the place of the Supreme Court Justices to decide what is the best structure. That decision was made by the framers and by we, the people when the Constitution was adopted.
And so the job of the Justices and the Supreme Court now is to understand what are the limitations imposed by the Constitution. But I think it's worth noting that to the extent that we're concerned with the practicalities and how this works. The way it has been working since the nation's founding, as we've been discussing, is that Congress has enjoyed this discretion.
And I appreciate Jenn pointing out the prominent role that the Custom Service played in the argument. We were delighted that we could bring that to the court's attention because we do think that is a very strong example. The argument Solicitor General Prelogar pointed to it as the best example historically. And we think if you look at the different characteristics of the Bureau's funding that the payday lenders are attacking the Custom Service seems to line up really nicely.
I mean, this was an example. This is the very first agency Congress created in 1789. It wielded authority over a vital component of the economy as Solicitor General Prelogar pointed out the service could board ships and seize vessels and inspect records and conduct searches. It could levy penalties and collect fines.
And there was no way to avoid that regulation. And it was financed not with an annual appropriation, but with an indefinite revenue stream provided in the legislation creating it. I think it's worth remembering that a lot of the argument was spent with the Justices and the attorneys talking about lots of different examples, both historical and contemporary. And we saw Noel Francisco spend a lot of time trying to explain why the CFPB is different from both historical examples and modern day examples.
And I think he really failed to offer a constitutionally meaningful way to distinguish them. At one point, Solicitor General Prelogar noted that perhaps in some ways, the CFPB is unprecedented but in the way that you could say this is the only agency that has the acronym CFPB. That's obviously true, but it doesn't track the constitutional value. And so in thinking about whether and to what extent the CFPB is different from these historical analogs and from all of the other federal, financial regulators that are also funded out of the annual appropriations process today, you have to really think what is the constitutional value that is being served, and whether any of those differences are meaningful from that perspective.
I think that's relevant in thinking about this question of fees that Jenn was talking a little bit about. Because I guess there's, from my perspective, two problems with that, and Solicitor General Prelogar talked about this a bit at the argument. If you think that the problem here is one of accountability and Congress giving away its power, it doesn't really address that issue that other fee funded agencies directly collect their money from entities they regulate.
The other problem is more of a factual or descriptive one, which i'm not sure actually imposes that much of a check on those agencies. A number of those agencies are imposing fees or collecting fees from entities they regulate that can't exit the regulatory sphere just because they disagree with regulations. And so it's not clear that it imposes much of a check at all. Particularly, when you remember that the CFPB actually has a quite meaningful check, which is a statutory cap that was put in place by Congress.
And if the CFPB, at some point, feels that it needs more money than that, it's gonna have to go to Congress and ask for that money, which is why the key here is that Congress made the decision, Congress exercised its discretion and that was a decision made by people that the American people elected to represent them.
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