Yesterday, the U.S. Supreme Court issued its long-awaited decision in Community Financial Services Association of America, Limited (CFSA) v. Consumer Financial Protection Bureau (CFPB or Bureau) holding that the CFPB’s special funding structure does not violate the appropriations clause of the Constitution. The 7-2 majority held the Dodd-Frank Act, which provides the CFPB’s funding structure, satisfies the appropriations clause because it “authorizes the Bureau to draw public funds from a particular source — ‘the combined earnings of the Federal Reserve System’ — in an amount not exceeding an inflation-adjusted cap. And it specifies the objects for which the Bureau can use those funds — to ‘pay the expenses of the Bureau in carrying out its duties and responsibilities.'” The Supreme Court further found that the “Bureau’s funding mechanism [] fits comfortably within the historical appropriations practice …” Justices Samuel Alito and Neil Gorsuch dissented from the decision.

The CFPB’s constitutionality, and the potential ramifications for its rulemaking and enforcement actions, has been in limbo since October 2022 when the Fifth Circuit held that the CFPB’s funding mechanism violated 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. The case has been pending with the Supreme Court for more than a year and in that time has served as a basis for multiple lower courts to issue stays and preliminary injunctions in anticipation of its resolution. Writing for the majority, Justice Thomas found that the appropriations clause only contemplates a law authorizing expenditures from a specified source of public money for designated purposes. And the CFPB’s funding structure satisfies those requirements.

Attention now turns to the injunctions issued by lower courts in anticipation of the decision. As discussed here, just last week, the U.S. District Court for the Northern District of Texas granted a preliminary injunction enjoining the CFPB from implementing its credit card late fee rule in Chamber of Commerce of the United States of America v. CFPB based on the questions surrounding the constitutionality of the CFPB’s funding. And as discussed here, in October 2023, the U.S. District Court for the Southern District of Texas in Texas Bankers Association v. CFPB granted motions filed by three groups of trade association intervenors to extend the court’s existing injunction against the CFPB’s enforcement of its final rule under § 1071 of the Dodd-Frank Act to cover all small business lenders nationwide until this issue was decided. That injunction was set to dissolve if the Supreme Court reversed the Fifth Circuit and found the CFPB’s funding structure constitutional.

In addition, it is anticipated the CFPB will look to set a new compliance date for its small dollar rulemaking, which was the original genesis of this appeal. As discussed here, although the Fifth Circuit determined the CFPB to have been unconstitutionally funded in its prior decision, the Fifth Circuit declined the invitation to otherwise invalidate the CFPB’s underlying small dollar rule on other legal grounds. Specifically, the Fifth Circuit rejected the other arguments raised by CFSA as to whether the rule was promulgated in accordance with the Administrative Procedures Act or was arbitrary and capricious. Of course, we are still awaiting the Court’s decision on the two Chevron deference-related matters, Loper Bright Enterprises v. Raimondo, discussed here, and Relentless, Inc. v. Department of Commerce, which may lead to additional impacts and opportunities with respect to the small dollar rule — particularly if the Court holds that Chevron actually requires a different level of deference to rules promulgated by federal agencies.

In addition to these potential rulemaking impacts, there are numerous enforcement actions and civil investigative demands that were stayed pending the outcome of the CFSA case, and we expect the Bureau to resume those matters now that the Supreme Court’s decision has been released.

Troutman Pepper will continue to monitor these litigations and provide updates.

Photo of Jason Cover Jason Cover

Jason’s in-depth experience advising on consumer lending matters both as in-house counsel and outside advisor provides extensive industry knowledge for his financial services clients.

Photo of Mark Furletti Mark Furletti

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial services across numerous industries.

Photo of Stefanie Jackman Stefanie Jackman

Stefanie takes a holistic approach to working with clients both through compliance counseling and assessment relating to consumer products and services, as well as serving as a zealous advocate in government inquiries, investigations, and consumer litigation.

Photo of James Kim James Kim

As a former senior enforcement attorney with the CFPB, James provides the industry knowledge and expertise that fintechs and financial institutions require when launching new products or facing regulatory scrutiny.

Photo of Misha Tseytlin Misha Tseytlin

Misha is a leading appellate attorney with an accomplished track record before the U.S. Supreme Court, federal courts of appeal, and state courts. He is a nationally recognized authority on administrative law and political law issues.

Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.