The Federal Government Can't Seem to Decide How the CFPB Is Funded

The Solicitor General's brief defending how the CFPB is funded contradicts what the agency and others have said in the past.

A recent decision by the U.S. Court of Appeals for the Fifth Circuit concluded that the funding mechanism for the Consumer Financial Protection Bureau is unconstitutional because it makes the agency too independent from the political branches. Specifically, the Fifth Circuit concluded that it was unconstitutional to allow a regulatory agency to bypass the appropriations process and, in effect, set its own budget.

As expected, the Solicitor General has filed a petition for certiorari with the Supreme Court seeking review of the Fifth Circuit's decision. Among other things, this brief argues that the CFPB's budget is properly appropriated. Yet as Adam White notes in the Wall Street Journal, this contradicts what the CFPB, its creators and others have said about the CFPB's funding in the past.

[The SG's] petition, filed Nov. 14, makes a remarkable claim: that the CFPB's self-funding power is constitutional because Dodd-Frank itself satisfies the Constitution's requirement. The CFPB and the Justice Department argue that the statute's grant of perpetual funding, in the amount determined each year by the CFPB director, "indisputably establishes an appropriation under the long-accepted understanding of that term." . . .

But in making its argument to the court, the CFPB and Justice Department's joint brief left out a crucial point: Throughout its entire history, the CFPB itself has consistently declared that its funding doesn't come from "appropriations":

• The CFPB's first director, Richard Cordray, testified to Congress in 2012 that the CFPB's revenues were "non-appropriated funds."
• The CFPB's 2013 strategic plan asserted that by "providing the CFPB with funding outside of the congressional appropriations process," lawmakers had ensured the bureau's "full independence." . . .
• Since 2013, the CFPB's financial reports consistently called the bureau "an independent, non-appropriated" agency. The most recent such report states: "The Dodd-Frank Act explicitly provides that Bureau funds obtained by or transferred to the CFPB are not government funds or appropriated funds." That report was released Nov. 15, the day after the bureau filed its Supreme Court petition. . . .

The CFPB isn't alone in describing its funding as something other than "appropriations." When Congress designed the agency, a Senate Banking Committee report found that a guarantee of "adequate funding, independent of the Congressional appropriations process," would be "absolutely essential" to the agency's "independent operations." That theme has persisted among the CFPB's advocates in Congress. In 2018, 40 Democratic senators opposed a proposal to return the bureau to Congress's appropriations power. They wrote that "the CFPB receives its funding from the Federal Reserve, rather than from the Congressional appropriations process" to "ensure its independence."

In short, the CFPB and its advocates have always understood that its money didn't come from "appropriations." This was a feature, not a bug—until it became clear that such "full independence" from Congress's power was an invitation to constitutional scrutiny.

I suspect that these prior characterizations will be featured in the opposing briefs and will be raised in oral argument if (as I expect) the Supreme Court grants certiorari. As White notes, the whole point of this funding structure was to make the CFPB more independent. Yet these efforts to make this powerful agency independent of both Congress and the President are precisely what raises constitutional concerns.

Just because the CFPB has an unusal funding structure does not necessarily mean that it is unconstitutonal. Other federal entities, including the Federal Reserve, are funded in a somewhat similar fashion. Further, as Will Baude noted here, Zach Price has argued that the Fifth Circuit was wrong, and that the CFPB's funding structure is misguided, but constitutional. But it is one thing to argue that the CFPB is funded in a constitutional manner. It is quite another to claim the CFPB is not funded the way everyone has always understood.

Comments

[Martinned]

Such inconsistencies are amusing, but hardly unusual. As long as the Solicitor-General can find an argument that convinces five Justices that the CFPB is constitutional, it doesn't really matter what the CFPB itself said previously.

[Noscitur a sociis]

I guess that’s true, if a bit tautological.

[Michael P]

I'm curious what support there is for the claim that this kind of confusion over funding is "hardly unusual".

Is the analogy that the US DoD cannot account for trillions of dollars of assets, our pandemic relief efforts gave billions of dollars to fraudsters, and 30 percent of the nation's healthcare spending is wasted, so not even having a theoretical idea of how this agency gets funded is par for the course? That's just how the United States government rolls?

[Joe_dallas]

Its doubtful the conservative SC will buy off / discover new (but erroneous) de novo finding of facts the way CA6 found the erroneous de novo findings of fact in Grutter.

[Abdul Abulbul Amir]

Memory hole, Oh memory hole how true are your ...

[Jerry B.]

Every time I see this acronym, I wonder why the Corporation for Public Broadcasting is unconstitutional.

[Tallman]

>The CFPB and the Justice Department argue that the statute’s grant of perpetual funding,

IIRC, the CFPB also has some ‘window’ provisions that purport to limit the ability of future Congresses to modify or eliminate that right to claim future funding*

*imho, it might be different if Congress had actually funded an account from wich the CFPB could draw operating expenses.

[BravoCharlieDelta]

After the ACA "it's a tax, it's not a tax" thing, it doesn't matter what they've said in the past. It only matters what the Federals want, if they get the right Democrat judges they will get it.

[Social Justice is neither]

It is good to see Adler being honest about his approval of government with no limits, oversight, control or responsibilities to the governed.

[David Nieporent]

Are you on drugs?

[Noscitur a sociis]

Could you quote one of the parts where you feel Adler is signaling his “ approval of government with no limits, oversight, control or responsibilities to the governed”?

[Dr. Ed 2]

Some argue that the Federal Reserve is also unconstitutional.

[Krayt]

We love democracy! Until we don't.

Democracy needs to put things beyond its own direct control. We love democracy but don't!

[Rossami]

No, we love liberty.

Democracy is usually the most reliable way to achieve liberty (or at least, the best at putting roadblocks in the way of illiberty) but never forget that democracy is the means, not the ends.

[Krayt]

'member when the US sold missiles to Iran at a markup, then diverted the profits to the Contras in Nicaragua, so as to get around the power of the purse law forbidding money going to the Contras?

One party said no, the other worked around it.

Here a different party, fearful of periodic loss of control, wants to put the inevitable beyond the easy reach of the other party.

Here's your zen thought for the day: look at this shiny stuff! Swat at that mobile like a baby! Gooble gerber goo!

[Krayt]

And the tired inevitable response, “If you can’t see the difference…!”

It was wrong then. It is wrong now. Gooble gerber goo! Here’s a pre-thought out response for you. See how it activates your feelings you are a good person, as if a teary-eyed Bambi was looking you in the eye, saying, “You’re a good person!” Gooble goober goo, I am a good person, and therefore a Great Thinker. The memes that flow through my neurons give me little positive strokes so I know I have latched onto some Deep Truth. We can have our contradictory cake and eat it too!

[Longtobefree]

Dear God!
Are you saying federal officials lie to the American public??!!

[Martinned]

No, he is saying that government lawyers don't have a reason to think long and hard about why something may or may not be constitutional until the issue is raised in Federal court.

[Ben_]

They care about using power against Americans to make our lives worse, not about pesky details regarding constitutional legalities. You’re just supposed to shut up and go along with all these things or else the bogeyman will wreak havoc.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

I don't think the "against Americans to make our lives worse" is true or necessary. They just want power. If it did happen to make our lives better, through some miracle, they wouldn't care either.

[BravoCharlieDelta]

They want to make our lives worse to save us from Global Warming (note they are excluded).

[rloquitur]

They just lost.

[Bob from Ohio]

"Other federal entities, including the Federal Reserve, are funded in a somewhat similar fashion."

Also unconstitutional.

[M L]

Nothing the federal bureaucrat would love better than to eliminate the last remaining vestiges of political accountability and constitutional fidelity.

[Sarcastr0]

The fantasies folks around here have about what goes on in the federal government are incredible.

[M L]

You collect a government salary while surfing the internet all day, right?

[Formerly Known as Stash]

Seems to me a constant of the law is that labels don't matter. Form does not trump substance. For example, parties might sign something called a "lease" and then always refer to it as a lease for years. But, if, in substance it is merely a license, it will treated and enforced as only a license, not a lease. (I recently won such an issue in the trial court and on appeal). It seems to me that how the funding mechanism was labelled, described, touted, or sold is not even relevant. If it can and should be constitutionally characterized as an "appropriation" that is all that matters.
From what I can tell, the statement that these are not "appropriated funds" refers to the fact that the funding is not subject to the ordinary annual appropriation process--not the notion that the funds have not been "constitutionally appropriated." As Price argues "Congress has provided authority by statute for the CFPB’s expenditures. That is all the text of the Constitution requires."
In other words, Congress made a "permanent appropriation" (as it has with, say, Social Security or debt service) authorizing the expenditures. There may be some rhetorical mileage from the previous characterizations, as "non-appropriated" but I don't see it as a particularly strong legal argument. What it has been called in the past makes no difference.

[Michael P]

Indeed. And when the law labels something as an individual shared responsibility mandate penalty, to be collected by the IRS when the subject doesn't do what the federal government says, clearly that means the something is a tax and thus a legitimate exercise of federal power.

[M L]

No, actually form often trumps substance. Sometimes maybe for a valid reason in constitutional law.

As to the issue at hand, in general, our federal government is a permanent self-sustaining bureaucracy. If Congress and the President disappeared tomorrow, they could keep on running without a hitch. Who wins elections and which party is in power generally makes very, very little difference to what the federal government does as a whole and to the policies that are actually carried out. The President can't even fire people or do mass layoffs. Congress passes significant legislation (like creating a worsened health insurance product, wow!) like once a decade.

There are many things that could be said about this, for example, how unconstitutional and dysfunctional it all is, and how the founding principle of decentralized government has been inverted. But one of the basic dynamics of how it works is this: Congress doesn't want to make the laws and hard decisions and policy choices that are demanded of it. So instead of doing that, they pass a law that says "We hereby create ABC agency and give them 1 zillion dollars, and ABC shall make the policy choices we don't want to make." The CFPB takes it a step further by not specifying the 1 zillion, instead letting ABC decide for themselves how much money they will take from the people.

The number one response to the general observation above, that you will get from federal bureaucrats like Sarcastro (he has said this multiple times) is this: But annual appropriations! Congress must appropriate all spending each year, so there is a vestige of political accountability and self-government and constitutional fidelity still!

And so here we are, naturally there are efforts to get around even this vestige. And it's already been done, probably many times to various degrees, for example see the mention of the Federal Reserve. If SCOTUS smacks down this effort, rest assured it will keep being tried again and again. Getting it done is just a matter of timing and the right circumstances. It is a question of power, not law. The forms over the substances, and the substances over the forms, will be massaged into a sufficiently esoteric and lawyerly construct. That is not a problem. Administrative law expert Jonathan Adler is already suggesting that the CFPB or something like it can probably work, but maybe not this time and agencies might need to be a little less up front about it.

[Formerly Known as Stash]

"No, actually form often trumps substance." Examples? Or, more specifically, when has it been held that a label trumps substance?

More generally, I get your philosophical and political objections, and have some sympathy for them, but I don't see the textual constitutional issue. What Congress giveth, Congress may taketh away. It could abolish the CFPB tomorrow. In theory, accountability exists--the fact that Congress may have de facto ceded it is a political, not constitutional issue. Exploiting political realities and inertia in constructing a bill isn't unconstitutional, even if it is bad government.

[M L]

Tax law for example is permeated with rules that put form over substance, and although there is an established interpretive rule to put substance over form in interpretation, that's just not what the law prescribes in many cases. In constitutional law I was thinking of Sebelius, though you might say that one came out the other way.

The textual constitutional issues are many. It would be easier to identify the ways that the federal government today still comports to the original meaning of the Constitution, than to list the ways it does not. But Article 1 Section 1 states that all legislative powers are vested in Congress. That's one textual issue, and going all the way back to Locke: "The Legislative cannot transfer the Power of Making Laws to any other hands. For it being but a delegated Power from the People, they, who have it, cannot pass it over to others." Another is Article 2 Section II, stating that the executive power is vested in the President. To the extent Congress can delegate any power in any form or degree, that power is solely vested in the President. Any purported "independent" power is by definition a blatant constitutional violation. There's no "in between" power in an unelected bureaucrat 4th branch permitted under the Constitution. And yet each of the alphabet agencies promotes this myth of their independence?! What we have in substance today is just that. It has grown and metastasized like a cancer in the system and is more powerful than the other branches combined. Certainly there are political as well as constitutional issues, but the political dynamic also all stems from the inversion of the principle of decentralized government -- the dysfunction of Congress and the rest of the federal government is a result of far too many disparate constituencies, a sprawling empire of sorts, and the attempt to go ever deeper in the matters of government being centralized in this system.

[ReaderY]

Given the Sebelius precedent regarding the meaning of “tax”, it is open to the United States to argue that the term “appropriation” as used in the Constitution has a specialized meaning different from the term as used in Congressional statutes or government press releases. In Sebelius the Supreme Court held the Constitution’s taxing power encompasses things that weren’t labeled taxes by Congress. The United States can make a similar argument about Congress’ constitutional appropriation power without contradicting itself.

Whether the argument is valid, whether the Constitution really gives the term “appropriation” the meaning the government would like to give it, is a separate question. But the government is not lying or contradicting itself by making such an argument.