On Thursday, May 16, the U.S. Supreme Court issued its ruling in the case of CFPB v. Community Financial Services Association of America. The Supreme Court ruled 7-2 that the way the CFPB is funded does not violate the Constitution, reversing a lower court decision. Specifically, the Supreme Court held that Congress’s statutory authorization for the Bureau to draw money from the Federal Reserve System’s earnings to carry out its duties complies with the Appropriations Clause.  

The Appropriations Clause requires that expenditures be authorized by law from a specified source of public money for designated purposes. The Court found that the Bureau’s funding mechanism meets these requirements as it draws funds from a particular source and specifies the purposes for which the funds can be used. Historical context, including pre-founding history and early congressional practice, supports this interpretation. The Court rejected arguments against the Bureau’s funding mechanism, concluding that it does not violate the Appropriations Clause. 

Rozanne Andersen, Senior Compliance Counsel at Finvi, discusses what this ruling means for lenders and collections agencies. 

Q: What was the Issue in the case? 

Rozanne: Whether the Bureau’s funding mechanism constitutes an “Appropriatio[n] made by Law.” The Court concluded that the answer is yes based on the Constitution’s text, the history against which that text was enacted, and congressional practice immediately following ratification.  

Q: What does the ruling mean? 

Rozanne: The CFPB is directly funded by the Federal Reserve in an amount to be determined by the Director of the CFPB, rather than determined by the annual Congressional budget process. Industry groups argued this funding mechanism is flawed in that Congress did not directly “appropriate” monies to the CFPB as it does for most other Federal agencies. It was argued that this process offers no check on the CPFB’s funding and therefore improperly shields the CFPB from congressional supervision which in turn violates the appropriations clause of the Constitution. The U.S. Supreme Court ruled that the process for funding the CFPB does not violate the Constitution, in that there is a cap on the annual amount of funding the CFPB Director may draw from the Treasury, keeping the status quo. The Court further explained exactly how the Appropriations Clause is meant to function. 

Q: What is the Appropriations Clause and how does it function? 

Rozanne: I doubt most readers, and even most lawyers, have studied the Appropriations Clause of the Constitution. In plain language, under the Appropriations Clause, an appropriation is a law that authorizes expenditures, from a specified source of public money, for designated purposes. In other words, Law + Specified Source of Money + Designated Purpose = Constitutionally Valid Appropriation under the Constitution. 

The Court ruled that the Dodd Frank Act of 2010 is the law that authorizes the expenditures/funding mechanism of the CFPB (Law); from the US Treasury (Specified Source of Money); to pay the costs and expenses associated with running the CFPB (Designated Purpose).    

Q: Was this a win for the CFPB, consumers or the financial services industry? 

Rozanne: Consumer groups consider this a win because the CFPB will remain intact as a regulatory body designed to protect the rights of consumers. Personally, I do not consider the ruling a win or a loss for consumer groups or industry groups, including third-party debt collectors. The upheaval, which would have ensued if the U.S. Supreme Court had declared the CFPB’s funding unconstitutional, would have been crippling. Consumers would have lost rights granted them under Regulation F and debt collectors would have been thrown back to the uncertainty in the law that preceded Regulation F. More importantly, litigation over past actions of the CFPB, as well as current actions of the CFPB, would be rampant. For example, the preliminary injunction entered on May 10, 2024, barring the enforcement of the new restrictions on bank fees, remains intact. However, we expect the CFPB to request a reconsideration of the injunction.   

Q: How does this ruling affect the CFPB? 

Rozanne: The ruling ensures the continuity and stability of the CFPB, meaning it can continue to regulate debt collection practices. This includes the 2021 Debt Collection Rule, which clarified how debt collectors can communicate with consumers and provided requirements for validation information and disclosures. However, experts fully expect the authority of the CFPB to be challenged on other grounds. 

Q: How does this ruling affect collections and recovery agencies? 

Rozanne: Collections and recovery agencies need to continue to adhere to existing compliance rules and continue to maintain strong compliance guardrails in their collections processes. Nothing should change in your existing processes. 

Q: What does this ruling mean for payday lenders? 

Rozanne: The CFPB remains empowered to regulate payday lending practices, protecting consumers from predatory behavior. Payday lenders must adhere to the CFPB’s ability-to-repay protections, ensuring borrowers can afford loans without falling into debt traps.  

Q: What does this ruling mean for the economy? 

Rozanne: The Supreme Court’s decision helps ensure financial stability for businesses. If the CFPB had lost its current source of funding, Congress would need to amend the Dodd Frank Act to align the CFPB’s funding with the Appropriations Clause of the Constitution. Alternatively, if Congress would fail to act, the CFPB would essentially cease to exist due to lack of funding. Its past enforcement actions and rules would be subject to judicial review and potentially nullified creating substantial uncertainty in the financial services market for banks and non-banks subject to the authority of the CFPB. It would also lead to numerous appeals and motions to vacate judgments for CFPB actions and Regulation F claims during the applicable statute of limitation. 

Finvi’s Commentary: Even before the day the CFPB opened its doors, as an organization, Finvi has supported the development of regulatory compliance tools within its ARM products — FACS, Artiva RM, and TCS. Following July 2010, when the CFPB launched its regulatory, enforcement, and supervisory programs, Finvi established a regulatory risk, security, and privacy team to monitor changes in state and Federal law, judicial decisions, and CFPB requirements to provide its clients with the functionality they need to meet their compliance requirements. In light of the US Supreme Court’s ratification of the CFPB’s funding structure, clients should take steps to implement Finvi’s collection software versions that include Regulation F functionality at their earliest convenience. 

Disclaimer: Finvi is a technology company and provides this post solely for general informational and marketing purposes. You should not rely on the content of this material for any other purpose or as specific guidance for your company. Finvi’s advice, services, tools and products described herein do not guarantee compliance with any law or industry standard. You are ultimately responsible for your own company’s actions and compliance efforts. Because everyone’s situation is different, you must consult your own attorneys, accountants, and/or other advisors to obtain specific advice on your company’s compliance, legal, tax, regulatory and/or other business needs. Despite Finvi’s efforts to provide current and up-to-date information, you need to recognize that the information contained herein may become outdated quickly and may contain errors and/or other inaccuracies.