How the Court might put the CFPB on Appropriations Without Blowing Up the Economy
The Supreme Court has accepted the CFPB’s petition to review the Fifth Circuit’s decision that its funding structure is unconstitutional and therefore its payday rule is invalid. Congress funded the CFPB by allowing it to set its own budget and receive money from the Fed. The CFPB is therefore insulated from the normal congressional appropriations process. The Court will decide whether this method of funding is consistent with the Constitution.
That constitutional issue is difficult, but even more delicate is the question of a remedy if the Court does hold the funding method unconstitutional. What relief does the Court grant the plaintiff? Is just the payday loan rule invalid, or should the Court conclude that the CFPB never had a legitimate source of money for operations? Some people are nervous that if the Court does find the CFPB’s funding structure unconstitutional that everything the CFPB has done is invalid and the large parts of the market that the CFPB regulates will be thrown into chaos. For example, the Mortgage Bankers Association has expressed concern that if the CFPB’s funding structure is struck down it will be unable to administer the rules that govern the mortgage market, grinding the market to a halt.
But is there a way for the Court to strike down the CFPB’s funding without risking a market apocalypse? Very possibly, and the Court has demonstrated the mechanism in another recent and important separations of powers case, Collins v. Yellen. In Collins shareholders of Fannie Mae and Freddie Mac (collectively the GSEs) sued to try to stop the Federal Housing Finance Agency (FHFA), acting as the GSEs’ conservator, from denying the shareholders sizable financial benefits from the GSEs. One of the arguments of the shareholders was that the relevant statutes improperly restricted the President’s power to remove the head of the FHFA. The Court agreed and found the removal restrictions unconstitutional. Great, the plaintiffs win, and the FHFA has to write a big check, right?
No. Instead, the Court remanded the case back to the Fifth Circuit with orders that the lower court analyze whether the unconstitutional removal provision was a cause of the financial injury the shareholders claimed. The Court distinguished this case, where the Director acted pursuant to valid statutory authority, from a line of cases where government officials used authority they did not properly have. In Collins the Court held that a constitutional defect does not automatically entitle a plaintiff to retrospective relief, though as Prof. Nielson points out, it may give rise to prospective relief. Instead, the constitutional defect needs to be a cause of the harm, and the plaintiff has the burden of proof. (How much of a cause the defect needs to be is unclear.)
This might strike you as unsatisfying. It certainly was for Justice Gorsuch whose partial concurrence lamented the lack of meaningful relief the decision would provide. However, as Justice Kagan pointed out in her partial concurrence, this sort of remedy does mitigate the risk that a body of regulation that the economy has come to rely on will be uprooted suddenly.
What might this mean for the CFPB’s funding? While it is certainly possible that the Court views Appropriations Clause questions as fundamentally different from a question about the President’s power to remove an officer, the Court could rule that the CFPB’s funding structure is unconstitutional and that going forward Congress must appropriate funds.
But what about the plaintiffs? To prevail in their effort to get the payday rule struck down, they would presumably need to show that the current funding method was a cause of the problems with the rule and that, if the CFPB was on appropriations, it would not have been able to put the rule forward.
This is a hard case to make, especially given the Fifth Circuit’s determination that the CFPB’s rule was consistent with statutory authority and procedural requirements. The plaintiffs would need to point to credible evidence that Congress, if it had control over the CFPB’s funding, would have prevented the CFPB from doing the rule or at least its objectionable aspects. To be sure, there is a lot of rhetoric on both sides that putting the CFPB on appropriations would result in its defunding, but the reality is that meaningful defunding of agencies is extremely rare if not unheard of.
In Collins and Seila Law, where the Court invalidated restrictions on the President’s power to remove the CFPB Director, the Court was hesitant to assume the President or Congress would take dramatic steps if it was forced to proceed without a discreet unconstitutional provision. Having passed a law creating and empowering the CFPB the Court might reasonably assume that it would be provided at least some funding. Such an assumption would of course be rebuttable, but the Court would likely remand the case on that very question.
The practical upshot would be that all of the CFPB rules would probably not go away in a flash and that CFPB enforcement actions wouldn’t all be voided instantly. Instead, in the future, the CFPB would need to rely on Congressional appropriations, which is a major form of congressional oversight of agencies. The other practical upshot is that this process could be repeated for other agencies that operate outside of appropriations like the OCC, FDIC, and, yes, the Federal Reserve.
Of course, those agencies are different from the CFPB, and the Court could distinguish them for constitutional purposes. But even if they are not different, the Court wouldn’t need to strike everything down. The possibility for the Court to hold an element of an agency’s structure unconstitutional while remanding for possible retrospective relief doesn’t require the Court to make sudden or sweeping substantive changes to law and regulation to impose significant corrections to the structural safeguards of the administrative state.
