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Financial Services Law Insights and Observations

CFPB argues funding constitutionality holding does not make sense

Courts Appellate Fifth Circuit CFPB Constitution Credit Reporting Agency Consumer Finance Enforcement Funding Structure


On October 25, the CFPB responded to a notice of supplemental authority filed by a credit reporting agency (CRA) in the U.S. District Court for the Northern District of Illinois, which sought to use a recent decision issued by the U.S. Court of Appeals for the Fifth Circuit as justification for the dismissal of a lawsuit against the CRA. In April, the Bureau sued the CRA, two of its subsidiaries, and a former senior executive (collectively, “defendants”) for allegedly violating a 2017 consent order in connection with alleged deceptive practices related to their marketing and sale of credit scores, credit reports, and credit-monitoring products to consumers. (Covered by InfoBytes here.) Following the 5th Circuit’s decision, in which a three-judge panel unanimously held in CFSA v. CFPB that the CFPB funding structure created by Congress violated the Appropriations Clause of the Constitution (covered by a Buckley Special Alert), the defendants filed a notice of supplemental authority on October 20, arguing that the suit must be dismissed and that the Bureau may not use unappropriated funds when prosecuting the suit. The defendants further contended that the 2017 consent order is invalid because the Bureau used unappropriated funds in its preparation.

The Bureau countered in its response that the 5th Circuit’s holding does not “make sense,” is “without support in law,” and does not help the defendants’ defense. According to the Bureau, “the court mustered no case from more than 230 years of constitutional history that has ever held that Congress violates the Appropriations Clause or separation of powers when it authorizes spending by statute, as it did for the Bureau.” Moreover, the Bureau argued that the appellate court’s contention that the CFPB’s funding was “impermissibly ‘double-insulated’ from congressional oversight” was incorrect because “Congress is fully capable of overseeing the Bureau’s spending, including because of several provisions in the Bureau’s statute that ensure its ability to supervise.” Adding that the court “should reject” the 5th Circuit’s analysis and “join every other court to address the issue—including the en banc D.C. Circuit—in upholding the Bureau’s statutory funding mechanism,” the agency further argued that even if the district court should disagree with this contention, it should still deny the defendants’ motion to dismiss because any alleged defect in the agency’s funding authorization “would not deprive the Bureau of the power to carry out the responsibilities given it by Congress to enforce the law.”