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Financial Services Law Insights and Observations

West Virginia AG pings CFPB on "unconstitutionally appropriated" funds

State Issues Federal Issues State Attorney General Appellate Fifth Circuit West Virginia CFPB Constitution House Financial Services Committee Senate Banking Committee Funding Structure

State Issues

On October 24, the West Virginia attorney general sent a letter to CFPB Director Rohit Chopra, and to the leadership of both the House Financial Services Committee and the Senate Banking Committee, regarding the constitutionality of the Bureau’s continuing operation. As previously covered by a Buckley Special Alert, the U.S. Court of Appeals for the Fifth Circuit held that the CFPB funding structure created by Congress violated the Appropriations Clause of the Constitution, which provides that “no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The 5th Circuit ruled that, although the CFPB spends money pursuant to a validly enacted statute, the structure violates the Appropriations Clause because the CFPB obtains its funds from the Federal Reserve (not the Treasury), the CFPB maintains funds in a separate account, the Appropriations Committees do not have authority to review the agency’s expenditures, and the Bureau exercises broad authority over the economy. In the letter, the AG argued that the Bureau cannot discharge its duties in a constitutionally permissible way. He further noted that the Bureau “plainly cannot do that with a funding scheme that ‘sever[s] any line of accountability between [Congress] and the CFPB.’” The AG urged the Bureau to reassess its future plans and to reevaluate whether its present regulations have any effect. The letter also requested answers to a series of questions, no later than November 1: (i) “Does the agency believe that any of the regulations that it promulgated under the unconstitutional funding scheme remain in effect? If so, which ones—and why? Similarly, how does the decision affect past enforcement actions?”; and (ii) “What plans does the Bureau plan to undertake to comply with the ruling? How will its ongoing enforcement efforts be effected? How will this change affect any promulgation of regulations? How will bank supervision continue, if at all?”