Supreme Court can run, but it can't hide from a sticky CFPB decision

The Supreme Court, like all government agencies, has a way of conducting its business that is methodical and consistent on the one hand and quirky and kind of funny on the other. The court begins its sessions on the first Monday in October and typically closes the session in late June or early July, and during the session will by turns have "sittings," where oral arguments are held and opinions delivered, and "recesses," where it mulls decisions and writes opinions. 

Because recording devices are barred inside the Supreme Court — and most other courts — opinions are delivered to the press via printed copy, which has led to the time-honored tradition known as the "running of the interns" where news interns physically sprint to deliver important opinions to their supervisors. Disclosure: No interns were harmed in the course of writing this column.

Another quirk of the court is that it tends to tell the public which writs of certiorari it will hear on Tuesdays and Fridays, and I for one was sure that either on Friday or this morning we would be learning when the Consumer Financial Protection Bureau's appeal of a 5th U.S Circuit Court of Appeals ruling striking down its funding structure would be scheduled for oral argument. But, alas, we did not because the court put off the decision for another day, or perhaps another session.

But the Supreme Court can't hide forever, though I can understand why it may want to. The 5th Circuit's decision last October in Community Financial Services Association of America v. CFPB found that the agency's funding structure — whereby it is funded through the Federal Reserve's operating expenses — violates the constitutional separation of powers by bypassing the congressional appropriations process. That decision is being stayed pending a Supreme Court appeal, but sooner or later the court is going to have to choose between competing impulses, and what it decides will tell us a lot about how radical this court really is.

But before we get there, some background: It should come as no surprise to a reader of this publication that the CFPB was controversial even before its inception. During the drafting and negotiation of the Dodd-Frank Act almost 15 years ago, almost everything about the nascent agency was fought tooth and nail, including how the agency would be funded. 

Politics and policy

Supreme Court hasn't decided yet to take CFPB constitutionality case

February 21, 2023 10:23 AM

One scenario that the agency's Democratic champions wanted to avoid was placing the agency at the mercy of congressional appropriations for the very logical reason that they feared a Republican majority would deprive the agency of needed funds — a fear that turned out to be well founded when former acting CFPB Director Mick Mulvaney zeroed out the agency's budget in 2018, although not through the appropriations process. 

What Congress came up with was a novel arrangement where the CFPB requests its operating funds from the Fed, which can give the agency up to 12% of its annual operating expenses. Since the Fed is self-funded through its open market operations and proceeds from its portfolio — it's more complicated, but let's just leave it at that — the CFPB is "double insulated" from congressional appropriations; Congress controls neither the CFPB's budget nor the budget from which the CFPB is funded. 

All of this is to say that there is ample reason for a 6-3 conservative Supreme Court majority to view the 5th Circuit decision as a ripe opportunity to wipe the CFPB from the face of the earth. But the fact that the court has yet to take up the case suggests, at least to nonlawyers like me, that there is something holding them back.

Supreme Court case law has, over time, developed something colloquially known as the absurdity doctrine, and it goes something like this: In cases where a law is written in an overly broad fashion, the court should engage in a plain reading of the legislative language except in cases that would create an absurd or unjust result. Put another way, the court is incentivized to think small when it's writing its opinions, or at least avoid opinions that would have sweeping and detrimental effects.

To wit, while the court would like to rule that the CFPB has to be subject to congressional appropriations — and a Republican House majority would like to reduce or include legislative stipulations about what the CFPB can and cannot do — it has to couch that ruling in a constitutional reading that doesn't also bankrupt the U.S. Mint, U.S. Postal Service, bank regulators, and most importantly the Fed itself. Throwing out the bathwater is one thing, but separating it from the baby is another.

Congress has outsourced funding of federal agencies almost from the inception of the Republic. The Postal Service was self-funded and flush with money for more than a hundred years before the advent of email and private shipping companies cut into its monopoly. Bank regulators are funded through fees to banks they supervise. And while navigating those distinctions may be simple, I'm not sure how one can call the CFPB double-insulated without painting the Fed with the same brush.

One possible answer lies within the 5th Circuit decision itself. In the ruling, Judge Cory Wilson notes that "where the Federal Reserve at least remains tethered to the Treasury by the requirement that it remit funds above a statutory limit, Congress cut that tether for the Bureau, such that the Treasury will never regain one red cent of the funds unilaterally drawn by the Bureau."

Perhaps if the court decides that the CFPB has to remit its unused annual budget to the Treasury, the bureau can pass constitutional muster and we can all move on. The court arrived at a similarly elegant solution when it struck the "for cause" standard that shielded CFPB directors from being fired — the most recent chance the court had before this one to mark the bureau for death, but opted for another way out.

But then again, this Supreme Court does not seem to be quite as concerned as past courts with not rocking the boat. What it comes up with when the justices inevitably do take up the CFPB case will tell us just how unconcerned they really are.