Found this today, from the Congressional Research Service (2 of their attorneys wrote it for Congress):
"The Bureau is not funded through discretionary funds from an appropriations act. The Bureau relies on
mandatory funding, chiefly through its Consumer Financial Protection Fund (the Bureau Fund or Fund).
Congress does not make annual appropriations to the Bureau Fund, and by statute, the Fund is not
“subject to review” by the appropriations committees. Instead, the statute authorizes the Bureau’s director
to determine the amount “reasonably necessary to carry out the authorities of the Bureau” and request that
amount from the Board of Governors of the Federal Reserve System. The Federal Reserve Board must
then transfer from its combined earnings to the Bureau Fund the amount specified by the director, so long
as it does not exceed a fixed percentage of the Federal Reserve’s operating expenses. Congress stipulated
that amounts in the Bureau Fund “shall not be construed to be Government funds or appropriated
monies.” Amounts in the Bureau Fund are “immediately available” and do not expire.
The Bureau’s chief funding source thus differs from annually appropriated accounts for most executive
agencies, but it is similar to other agencies that are supported in whole or in part by direct spending bills,
including other financial regulators. The Federal Reserve, the Office of the Comptroller of the Currency
(OCC), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration, the
Farm Credit Administration (FCA), the Office of Financial Research (OFR), and the Federal Housing
Finance Agency (FHFA) cover all or part of their costs with funds derived from regulated entities or other
investments. Statutes specify that assessments by the Federal Reserve, the OCC, the FCA, the FDIC, the
FHFA, and the OFR are not “Government” or “public” funds, nor are they “appropriated” money. Like
the CFPB, these agencies do not rely on appropriations acts to continue their activities from year to year.
The Fifth Circuit’s Reasoning
The Fifth Circuit’s three-judge panel decision stems from a challenge to the Bureau’s Payday Lending
Rule (the Rule) brought by payday lenders and credit access firm associations arguing that, even after
Seila Law, the Bureau’s structure is unconstitutional. Among other challenges to the Rule, the plaintiffs
cast the Bureau Fund as “usurp[ing] Congress’s role in the appropriation of federal funds” in violation of
the Appropriations Clause and separation of powers.
The court largely agreed that the Fund was unconstitutional. It began by describing the Appropriations
Clause’s role in the separation of powers. Citing Supreme Court case law, the Fifth Circuit explained that
Congress’s control over money in the Treasury limits all powers of the other two branches. That is, no
action by the other branches may permit disbursements from the Treasury unless supported by an
appropriation. According to the Fifth Circuit, the clause is more than a restraint on the executive and
judiciary; the clause also “affirmatively obligates Congress to use” its “power over fiscal matters” to
preserve the separation of powers and individual liberty.
The Fifth Circuit then identified two features of the Bureau Fund that, in the court’s view, show Congress
abdicated this duty. The first and “[m]ost anomalous” evidence was the Bureau’s power to requisition
funds from the Federal Reserve, a “self-actualizing, perpetual funding mechanism.” According to the
court, Congress ceded both “direct control over the Bureau’s budget by insulating it from annual or other
time limited appropriation” and “indirect control” by drawing Bureau funding from Federal Reserve
earnings, which are themselves “outside the appropriations process.”
The second problematic feature of the Fund identified by the court was how Congress structured the
Fund. In the Fifth Circuit’s view, the Fund is “off the books” because it is allegedly not a “Treasury
account” but a “separate” account at a Federal Reserve bank. Fund amounts are available to the director
upon transfer, do not expire, are not government funds or appropriated monies, and are not reviewable by
the Appropriations Committees. The Fifth Circuit wrote that these provisions resulted in Congress
“relinquish[ing] its jurisdiction to review agency funding,” as well.
The Bureau’s arguments to the contrary did not persuade the court. The Fifth Circuit disagreed that the
Bureau Fund passed constitutional scrutiny because a statute created it. Here, the court distinguished two
types of statutes: “mere enabling legislation” and an “appropriation.” As a constitutional matter, only the
latter statute type authorizes outlays from the Treasury. The Fifth Circuit reasoned that Congress did not
make an appropriation under the Constitution when it created the Bureau Fund because Congress
specified that amounts in the Fund are not “appropriated monies.”
The Fifth Circuit also declined the Bureau’s invitation to follow other federal courts, including the U.S.
Court of Appeals for the D.C. Circuit, that have affirmed the Fund’s constitutionality. Those other
decisions, the Fifth Circuit wrote, were based “largely on one factor”: the self-funded nature of other
financial regulators. “Even among self-funded agencies,” the court stated, “the Bureau is unique.” It has
“a perpetual self-directed, double-insulated funding structure” that “goes a significant step further than
that enjoyed by the other agencies.” The court also emphasized that the Bureau was led by a single
director, answerable to the President with “plenary regulatory authority.”
Finally, the court highlighted possible implications of the CFPB’s arguments. If it were enough for the
Bureau Fund to derive from a statute, then “what would stop Congress from similarly divorcing other
agencies from the hurly burly of the appropriations process?”
