In Consumer Financial Protection Bureau v. Community Financial Services Assn. of America, Ltd., 601 U.S._ (2024), the U.S. Supreme Court addressed the constitutionality of the funding mechanism for the Consumer Financial Protection Bureau (CFPB). The case hinged on whether the Bureau’s funding, derived from the earnings of the Federal Reserve System rather than traditional annual appropriations by Congress, violated the Appropriations Clause of the Constitution.

The Appropriations Clause mandates that “(n)o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” This clause traditionally requires federal agencies to seek renewed funding from Congress each year through specific appropriations acts. However, the CFPB operates differently; it is authorized by Congress to draw funds from the Federal Reserve’s earnings, with the Director determining the amount necessary for the Bureau’s operations, subject to an inflation-adjusted cap.

Several trade associations representing payday lenders and credit-access businesses challenged the CFPB’s funding mechanism, arguing that it circumvents the Appropriations Clause by not requiring annual appropriations from Congress. The Fifth Circuit Court of Appeals agreed with this contention, finding the funding mechanism unconstitutional.

Upon review, the U.S. Supreme Court, in a 7-2 decision, overturned the Fifth Circuit’s ruling. Justice Clarence Thomas, writing for the majority, emphasized that an appropriation under the Constitution requires an identifiable source of public funds and authorization to expend those funds for specified purposes. The Court concluded that the CFPB’s funding mechanism meets these criteria: it identifies the source of funds (earnings of the Federal Reserve System) and specifies their use exclusively for the Bureau’s operational expenses.

Justice Thomas underscored that historical context and congressional practice following the Constitution’s ratification support this interpretation. The Court’s decision clarifies that the statutory framework allowing the CFPB to utilize Federal Reserve earnings complies with the Appropriations Clause, dismissing claims that the Bureau’s funding mechanism violates constitutional principles governing fiscal accountability and separation of powers.

This ruling affirms the CFPB’s unique funding structure within the federal regulatory landscape, highlighting the Court’s interpretation of the Appropriations Clause to accommodate innovative funding arrangements while maintaining constitutional integrity.