Last May, the Supreme Court issued a surprising and controversial decision in a case called Consumer Financial Protection Bureau v. Community Financial Services Association of America. The majority opinion was written by Justice Thomas, with dissents by Justices Alito and Gorsuch.
The Court held that the Constitution permitted the CFPB (called the “Bureau”) to become an agency within the Federal Reserve (Fed) and to be funded in the future by drawing its appropriations from the Fed rather than from Congress. The Court also agreed that the Bureau’s funding could be determined each year simply by the Director of the Bureau drawing funds from the Fed.
This new CFPB structure is highly unusual, and the Court’s decision to uphold it was surprising. Virtually all other government agencies are chartered by Congress and receive their funding either from Congress or (with congressional oversight) from the industries they regulate or oversee.
The key element of the Court’s decision was simple:
The Bureau’s funding statute contains the requisite features of a congressional appropriation. The statute authorizes the Bureau to draw public funds from a particular source—“the combined earnings of the Federal Reserve System.”
The key constitutional provision at issue is Article I, Section 9, Clause 7: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by law.” The Court held that CFPB funding can lawfully be drawn from the Federal Reserve before it reaches the Treasury. The Court’s novel theory is that the funds the Fed receives and forwards to the Treasury can be considered appropriations of Treasury funds because that money is eventually going to the Treasury anyway.
Accordingly, this decision means that any other governmental agency now financed by congressional appropriations could in the future also become a subsidiary of and receive its operating funds from the Fed. Because most agencies would find this a benefit—relieving them of the need to justify their activities and financial needs to Congress each year—it would not be surprising if many other agencies sought the same funding arrangement in the future.
Could this arrangement be consistent with the Constitution? Given the way Congress has functioned since the constitutional system was devised, this seems doubtful.
In this case, the Court adopted a very narrow interpretation of Article I, Section 9, Clause 7, reading it to apply only to the act of “appropriation” of funds by Congress, as though it is irrelevant how the recipient agency actually uses or will use the funds. If that is the true meaning of the clause, then the CFPB and any other agency can constitutionally be funded by the Fed without anyone considering how the funds it receives are actually spent.
It is questionable whether this narrow reading of Clause 7 is correct. Since the adoption of the Constitution, Congress has always sought to determine how the funds it has appropriated were spent by the agencies that received them. Whether they were spent properly or effectively has not been irrelevant.
Since Congress raises the government’s funds through taxes on the population, it would also seem odd to taxpayers and the American people generally—whether at the time of the Constitution’s ratification or throughout the country’s history—if the phrase “No money shall be drawn from the Treasury, but in Consequence of Appropriations made by law” did not contain an implicit assumption that Congress would assess how much funding was necessary for an agency as well as how the agency had spent the funds it had received. Indeed, that is what Congress has always done.
In other words, Clause 7—at least as Congress has interpreted it in the past—contains an implicit congressional duty to see that appropriated funds are spent effectively and within the agency’s legal authority.
If this is not true, then Congress—and the Court itself—will have trouble controlling the agencies of the administrative state. What an agency actually does with its funds is the key question in determining whether it is acting within or outside its statutory authority. Under the CFPB’s authorizing legislation, its chairman draws the necessary funds from the Federal Reserve. The Fed is not given any discretion on whether to deliver the funds, so obviously the Fed will not be able to make a determination as to whether the CFPB is acting within its legislative authority in its use of the funds.
The Bureau’s legislation authorizes the chief executive officer of the Bureau to establish its annual financial needs and to request that the Fed supply the necessary funds to pursue its objectives. This unusual arrangement is consistent with the Court’s novel view that Clause 7 does not give Congress authority to determine how the agency uses the funds. But the fact that this arrangement is entirely novel in historic congressional practice again raises questions about whether the Court was correct to open this new path for agencies.
In CFPB v. Consumer Financial Services Association, the Court seems to have ignored entirely Congress’s implicit and traditional role in determining how effectively the public’s money is spent under Clause 7. It even limits the Court’s own authority to determine whether an agency might be acting outside its congressional authority.
These elements, combined with the fact that all agencies now funded by Congress would like in the future to escape congressional oversight by getting their funds from the Fed, suggests that the Court should re-visit its decision in this case as soon as possible.
Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].