Could the Consumer Financial Protection Bureau’s (CFPB) victory in the Supreme Court last week create a boomerang that strips the bureau of power and invalidates its rules? No, if the matter is read carefully and properly: | Vikram David Amar | Verdict

On May 16, the U.S. Supreme Court rejected the idea that the financing of the Consumer Financial Protection Bureau (CFPB or Bureau), a powerful regulatory agency created by Congress to protect fair treatment of consumers after the 2008 financial crisis, violated the so-called Appropriations Clause. Constitution. This clause, contained in Article I, Section 9, provides in relevant part that “No money shall be levied from the treasury, except by appropriation made by law.” Opponents of the CFPB argued that because under the Dodd-Frank statute establishing and authorizing the CFPB, the Bureau receives operating funds from the revenues of the Federal Reserve System rather than through an annual appropriations bill approved by Congress, the limits on the appropriations clause were not preserved. They won on this argument in the lower court.

However, last week the Supreme Court in 2013 Consumer Financial Protection Bureau v. Community Financial Services Association of America, Ltd., reversed. In the Court’s opinion for himself and six other judges, Justice Clarence Thomas explained that:

According to the Appropriations Clause, an appropriation is simply a law authorizing the expenditure of a specified source of public money for designated purposes. The statute providing funding for the Office meets these requirements. The Court therefore finds that the financing mechanism of the Bureau is without prejudice to the appropriations clause.

Unsurprisingly, the ruling sparked jubilation among Bureau fans, including Congress’ chief architect, Senator Elizabeth Warren (D-MA). But in an article published this week “Wall Street” dailyEmeritus Harvard Law Professor Hal Scott (Senator Warren’s colleague when she was at Harvard Law School) wrote the following:

Not so fast. It’s true that CFPB v. Community Financial Services Association of America, decision 7-2. . . ruled that the Constitution’s appropriations clause authorized Congress to fund the bureau with profits from the Federal Reserve. The appropriations clause requires that any money “taken from the Treasury” must come from “appropriations appropriated by law.” Justice Thomas noted(d) that under the Federal Reserve Act, “excess funds in the Federal Reserve System would otherwise be deposited in the general fund of the Treasury.” Since the money would otherwise go to the Treasury, it is counted as “taken from the Treasury” and therefore the law redirecting it complies with the Appropriations Clause. But the Fed has been losing money for almost two years because of rising interest rates. Even if the Fed can justify (continuing) payments (in recent years under the terms of) the Dodd-Frank statute, the constitutional problem remains. Because the Treasury no longer receives any surplus from the Fed, central bank financing can no longer be considered “Treasury-sourced.” This means the agency cannot invoke the Appropriations Clause – or last week’s Supreme Court decision – to justify the legality of its continued operations. This calls into question the viability of funding the CFPB from September 2022 – and all regulations issued during this period. The CFPB’s dramatic victory could turn out to be a stunning defeat (emphasis added and some sentences changed for clarity).

Before I analyze Professor Scott’s position on this matter, I would like to say that I have not always been a fan of what I think the CFPB is doing. But putting that aside, and with all due respect to Professor Scott (whom I don’t know, but who seems to be a real leader in his regulatory fields), the notion that last week’s case could result in a defeat for the CFPB is simply wrong and shows a careless reading. with the opinion of the Tribunal and misunderstanding the foundations of constitutional law. This does not mean that last week’s ruling insulates the CFPB from future challenges based on other constitutional claims, but Professor Scott’s contention that the decision (coupled with real-world developments) could, on its own, enable another challenger to prevail against the CFPB on the claim based on the means clause is inappropriate.

The fundamental problem with Professor Scott’s argument is his apparent belief that the Appropriations Clause was, in the Court’s eyes, a shield that the CFPB effectively invoked to justify funding the Bureau. It was nothing like that. The Court merely found that the Appropriations Clause was not the sword the challengers made it out to be. In this regard, Professor Scott’s logical error is to suggest that the Bureau “relied on the appropriations clause.” . . in order to justify the legality of further activity.” Instead, the Bureau simply rejected the notion that the appropriations clause was something that challengers could rely on.

To put this into perspective, it should be noted that the Court cited the fact that excess Federal Reserve funds not transferred to the CFPB would otherwise be deposited in the Treasury merely to clarify that the Bureau’s financing mechanism must comply with the requirements of Means Clause (regardless of these requirements):

As a threshold issue, the parties agree that funding for the Office must be consistent with the Appropriations Clause. The appropriations clause applies to money “taken from the Treasury”. Piece. I, §9, cl. 7. The Bureau receives money from the Federal Reserve System. 12 USC §5497(a)(1). Otherwise, excess funds in the Federal Reserve System would be deposited into the general fund of the Treasury. §289(a)(3)(B). Notwithstanding the scope of the term “Treasury” in the Appropriations Clause, money otherwise allocated to the general fund of the State Treasury is eligible (emphasis added).

To repeat, Professor Scott suggests that money diverted from the Federal Reserve to the Bureau in years in which there is no Fed surplus is not money “taken” from the Treasury because this money from Bureau funds would never have been deposited in the Treasury. (In this regard, it appears that only Fed surpluses, not all Fed revenues, go to the Treasury’s general fund). But even if his suggestion is correct – which in itself may be debatable – it only means that any challenge to the Appropriations Clause against CFPB funding would be weaker, because the limitations of the clause would simply not apply at all. Insofar as Professor Scott suggests that the clause has any application to funds NO collected from the State Treasury, does not read the text of the constitution or the Tribunal’s own words very carefully.

Of course, the appropriations clause is not the only constitutional game in town, and someone could make it happen Other constitutional arguments against the CFPB. But the meaning of the appropriations clause is the only issue raised by opponents, the only one that was at issue in last week’s case, and therefore the only one addressed by last week’s ruling.

In fact, the Court was quite clear on the following points:

(Prosecutors, arguing that the Appropriations Clause requires more active congressional oversight than was the case here) err in limiting the power of the purse only to the principle expressed in the Appropriations Clause. To be sure, the appropriations clause assumes Congress’s budget authority. However, its wording and location in the Constitution clearly show that it is not in itself the source of these rights. (Emphasis added). The Appropriations Clause was worded as a restriction: “No money shall be levied from the Treasury, except in consequence of appropriations made by law.” . . . In addition, it is included in a section (Article I, § 9) containing other such restrictions (such as: “No law of admission or ex post facto law shall be passed”) and “No tax or duty shall be imposed on articles exported. from any state (contrary to Article I, § 8, which states): “Congress shall have power…” . . “). (Prosecutors) offer no defensible (theory) that the Appropriations (Limitations) Clause requires (that) more than (that Congress determines the purposes for which certain funds should be used). Without such a theory, (the applicant’s) challenge to the means clause is bound to fail.

So while there may be other constitutional claims (beyond violations of the Appropriations Clause) that citizens can raise regarding how the Bureau is funded, under no circumstances can last week’s opinion be relied upon to support such claims. (Indeed, the Court’s reluctance to sneak into an appropriations clause unsupported by historical practice tends to waive, at least to some extent, other claims.)

While I do not express a clear opinion on the strength of other types of constitutional arguments that can be raised against the Bureau, I note that Professor Scott, like last week’s challengers, offers nothing beyond a (now debunked) invocation of the Appropriations Clause. Just in case Professor Scott might think federal spending is like that NO collected from the Treasury (as defined by the Treasury) is inherently unconstitutional, he would have to clarify this argument. It would also have to explain why (on its own terms) the Federal Reserve itself is currently able to operate and spend money from its revenues when (as noted above) federal statutes appear to require that only surplus, rather than all of the Fed’s revenues, will be deposited in what Professor Scott defines as the treasury. In any case, and most importantly, such an argument has nothing to do with last week’s ruling,

I should also note that at a more basic constitutional level, the bureau’s statutory responsibilities (consumer protection) appear to be largely supported by several congressional powers (including the power to regulate commerce among the several states) and the federal government’s director general’s ability to issue money even in the event of a deficit obviously seems permissible, given that Congress has been given the power to borrow money on U.S. credit

In addition to constitutional claims, someone might challenge CFPB funding in years when the Fed runs a deficit as a statutory violation. The importance, according to Dodd-Frank, of the “revenues” of the Federal Reserve System (from which the CFPB is supposed to be funded) in years when the Fed is operating at a deficit is an issue that may need to be addressed (and it is an issue on which I have little to note, except that “earnings” is a term that, even if it refers to profits rather than profits, does not necessarily have to be understood in reference to a specific year). However, this (perhaps interesting and important) statutory issue is distinct from any constitutional limitation, and Professor Scott in his article clearly sets aside the importance of the statute and focuses instead on what he considers a “constitutional issue”. it remains. As for the Constitution, while this ruling does not constitute a universal, constitutionally clean bill of health for the Bureau (no ruling was ever intended to insulate any entity from attacks beyond those in the case at hand), it makes no sense what the CFPB’s “dramatic victory” may turn out to be a stunning failure.” At worst, it may not prove to be a victory that resolves all other possible attacks, but it always does, and Professor Scott does not even attempt to sketch any credible attacks on the Constitution that should or will occur.