The CFPB is constitutional, and its opponents need to move on

Bloomberg News

When the Supreme Court heard oral arguments on the constitutionality of the Consumer Financial Protection Bureau's funding structure last fall, it seemed pretty clear to me at the time — and I would venture to say to most people watching — that the case wasn't going to go the plaintiffs' way. I would not have bet on the opinion affirming the CFPB's funding structure as constitutional being written by Clarence Thomas, but the fact that it was seemed only to affirm the impression that the Supreme Court's appetite for constitutional arguments about the CFPB has been fully sated.

And yet it seems that some dreams never die. The plaintiffs in that case last month thesubmitted a motion in the 5th Circuit arguing that the court "erred in its disposition of the non-Appropriations Clause challenges in this case, which the Supreme Court did not review," signaling their intention to keep the party going. In the 5th Circuit's 2022 opinion — which found the bureau's funding unconstitutional, teeing up the Supreme Court's decision almost two years later — the appellate judges granted summary judgment on all of the plaintiffs' complaints save for those related to the bureau's funding, saying that "for the most part, the Plaintiffs' claims miss their mark." 

The CFPB filed its own motion in response, arguing that the deadline to appeal the rest of the decision has long since passed. This comes as a new argument about the unconstitutionality of the CFPB's funding is gaining steam — at least among lawmakers receptive to such an argument — that holds that because the bureau is funded by the Federal Reserve's "earnings," and because the Fed has not yielded a profit since 2022, the bureau has been unconstitutionally funded since that time and thus its regulatory actions are null and void.

I think even the plaintiffs in Community Financial Services Association of America v. CFPB must know that their bid to reopen the case is a long shot, though the 5th Circuit is where legal long shots get their fairest hearing. I don't know that the novel legal theory — authored by Harvard Law professor emeritus Hal Scott, who has offered these litigative pitches on financial regulatory issues before — is the one that the plaintiffs intend to tee up even if they get a rehearing. What I also don't know is why this or any other theory would prevail if the last one didn't, and thus why pursuing more litigation on this score is a productive use of anyone's time.

Let's presume for a moment that Scott's argument about the Fed's earnings is the one that gets litigated and comes before the Supreme Court. The best plaintiffs can hope for is a deep meditation on whether "earnings" is synonymous with "profits" or "income." If the court decides it is the former, it would establish a regime whereby a federal agency drifts in and out of being funded — or at least being funded constitutionally — and that seems like an outcome that even this Supreme Court is inclined to avoid. More to the point, the plaintiffs' case is based on the validity of the bureau's 2017 payday lending rule, which was promulgated well before the Fed stopped turning a profit. 

But even if there is some other constitutional argument out there against the CFPB's existence, its chances of succeeding where the last two have failed seems increasingly remote. That isn't to say that CFPB actions can't be challenged in court — many already are, and depending on how the forthcoming Supreme Court opinion on the Chevron doctrine goes, those challenges may become routine. But brute force challenges to the existence of the CFPB seem like a dead end for everyone except litigation attorneys.

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That is not to say that opponents of the agency are out of options — Congress could pass a law abolishing the bureau or amending its structure any time they want. But there are not and have not been the votes to do so because protecting consumers from scams is generally popular and abolishing an agency so charged is unpopular. 

Of course, public opinion can change and is susceptible to influence. It is also true that if former President Trump wins in November, the actions coming out of the CFPB will likely be viewed more favorably by the agency's opponents. Individual lawsuits against individual agency actions may yield favorable results for affected industries. Giving up the dream of defeating the CFPB once and for all doesn't necessarily mean taking each of its actions lying down.

But it's time to change gears and acknowledge that there is no souped-up Delorean that can take us back to 2010. The CFPB is here to stay — and if the agency's opponents want to be here to stay, too, they should set their sights a little lower.