On October 3, the U.S. Supreme Court heard arguments in Community Financial Services Association of America, Limited (CFSA) v. Consumer Financial Protection Bureau (CFPB or Bureau), a case in which the Fifth Circuit held that the CFPB’s funding mechanism violates the Appropriations Clause because the CFPB does not receive its funding from annual congressional appropriations like most executive agencies, but instead, receives funding directly from the Federal Reserve based on a request by the CFPB’s director. If the Supreme Court affirms the Fifth Circuit’s decision, the future of the Bureau as well as its rulemaking and enforcement actions would be in question.

At issue for the CFPB was what limits, if any, the Constitution puts on how Congress appropriates funding, given that the CFPB is funded indirectly through the Federal Reserve as opposed to money appropriated by regular Congressional appropriations acts. In her opening remarks, the U.S. Solicitor General pointed to historical precedent. “Since the founding, Congress has consistently funded agencies through standing appropriations that are not time-limited and that provide significant discretion over how much to spend.” Justice Clarence Thomas pushed back on this asking, “other than passing an appropriations law, are there any limits on what Congress can do?” To which the Solicitor General referred to the Army appropriations clause as support that there are no real limits on how Congress decides to structure funding. Justice Neil Gorsuch asked whether having a funding cap is an essential feature in determining the constitutionality of a provision. To which CFPB counsel responded that Congress does not need to specify a statutory funding cap for an appropriation to be constitutional, but it does needs to specify the purpose of the funding.

Justice Sonia Sotomayor noted near the end of the CFPB’s questioning, that none of the other Justices had raised the issue of remedy: “General, it might be a good sign or a bad sign, I don’t know. Nobody’s talked about remedy. Let me give you an opportunity to summarize your best argument why the Court below erred in its broad remedy of striking down basically not just this Payday Lending Rule but basically saying anything this agency’s done since the beginning is invalid?” The CFPB’s counsel responded by referring to the amicus brief submitted by the Mortgage Bankers Association proposing the possibility of a narrow prospective remedy that would prevent the Bureau from enforcing the Payday Lending rule against CFSA until it has a valid appropriation.

In its opening remarks, CFSA’s counsel characterized the case as one about checks and balances. If the CFPB’s funding is found to be constitutional, counsel argued, “then [Congress] can authorize the President to spend whatever he deems reasonably necessary as long as he doesn’t exceed $10 trillion, and that would work a sea change in the separation of powers.” Justice Elana Kagan showed some skepticism to this argument remarking, “it does seem to me that your argument is essentially that what the Appropriations Clause demands is annual line-item appropriations, that that’s the — not just the paradigm appropriation, but the only constitutionally valid kind of appropriations, and that any deviation from that needs some special justification or maybe is just like unconstitutional per se. I’m not exactly sure what the argument is. But the history of our country just rejects that scheme. … So you’re just flying in the face of 250 years of history.”

Counsel for the CFSA responded by arguing that it was not just one factor that made the CFPB’s funding structure unconstitutional, but the unique combination of factors. “I think it’s enough to say that when you delegate to the executive the authority to pick its own numbers, subject only to a cap that’s so high it’s rarely relevant, and if not perpetually, at least for a — a long period of time, you have uniquely brought together a set of factors that does allow Congress to essentially transfer its appropriations power to the executive branch for an indefinite period of time, and you just have to multiply that across the agencies to see why that’s so dangerous.”

A transcript of the oral argument can be found here.