Fannie Mae-No Politics (FNMA)

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This bodes encouragement for our same Filing against FHFA

The CFPB Engages in Legal Deception

The bureau’s Supreme Court petition contradicts its own repeated claims
about its funding structure.



By Adam J. White - Dec. 4, 2022 1:43 pm ET

The Consumer Financial Protection Bureau is supposed to police against “unfair, deceptive, or abusive” practices. But the CFPB, which Congress established in the Dodd-Frank Act of 2010, is engaging in some false advertising of its own.

The Fifth U.S. Circuit Court of Appeals ruled in October that the bureau’s unprecedented power to fund itself is unconstitutional. The Constitution prohibits agencies from spending from the federal Treasury without “appropriations made by law.” The CFPB does exactly that. The Dodd-Frank Act authorizes its director to decide unilaterally how much the agency needs to spend and to demand that the Federal Reserve transfer the funds to the agency. As long as he doesn’t demand more than 12% of the Fed’s operating expenses, the central bank is obligated to pay up. The Fifth Circuit recognized that this self-funding power violates the Constitution and undermines one of the basic pillars of republican self-government.

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.”

To be sure, this is a novel question. The Supreme Court has never had to decide the precise meaning of “appropriations” in circumstances like this, because Congress has never before created this kind of executive regulatory agency with such a funding structure. As obvious as it may seem that this doesn’t fit the meaning of the Constitution’s requirement for an “appropriation,” the court can now answer that question authoritatively.

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.”

• The bureau’s 2014 annual report reiterated that Dodd-Frank gave it “a source of funding outside the appropriations process.”

• 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.

• Last year, when CFPB Director Rohit Chopra told the Senate Banking Committee that the CFPB’s “base level of funding” is “guaranteed by statute,” he drew a contrast between that funding and any extra money that the agency might someday request from Congress, which would be “subject to the normal appropriations process.”

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.

No federal regulator should enjoy “full independence” from Congress. It is one thing for lawmakers to fund an agency partly through licensing fees or other sums paid by businesses that benefit directly from the agency’s work, or for Congress to grant an agency appropriated funds for a few years at a time. Funding an agency in perpetuity without congressional action is a recipe for unaccountability. It defeats both the Constitution’s text and spirit.

As James Madison emphasized in Federalist No. 58, Congress’s power of the purse was intended to be the “powerful instrument” preventing “all the overgrown prerogatives of the other branches of the government.” Requiring the executive branch to ask Congress to raise revenue “requisite for the support of government” helps to ensure that administration is truly supported by the people. “This power over the purse,” Madison emphasized, “may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people.”

In Dodd-Frank, Congress simply signed away its power of the purse and created what Justice Antonin Scalia once called “a sort of junior-varsity Congress.” The Fifth Circuit got it right, and if the Supreme Court takes up the case, it should return the constitutional purse to Congress, the people’s trustee.

Mr. White is a senior fellow at the American Enterprise Institute and a co-director of George Mason University’s Gray Center for the Study of the Administrative State.