The Supreme Court seems skeptical of a challenge to consumer agency

In a major Supreme Court case involving the structure of government, a majority of justices seem inclined to uphold the way the Consumer Financial Protection Bureau and many other agencies are funded.

After the 2008 crash, Congress created the CFPB to protect consumers from what were seen as predatory and deceptive practices by financial institutions.

Since then, the Bureau has established consumer protections for financial transactions ranging from mortgages to credit cards. But payday lenders have, for years, fought regulations that would limit excessive fees charged on small loans of just a few hundred dollars — fees that often end up costing people thousands of dollars.

Then last year, the Fifth Circuit Court of Appeals, which covers Texas and some southern states, ruled the CFPB's structure is unconstitutional. The appeals court said the Bureau's funding mechanism violates the appropriations clause of the Constitution because instead of an annual congressional appropriation, Congress set the agency's funding at an annual capped amount that comes from banking fees paid to the Federal Reserve system.

The government appealed to the Supreme Court because many other agencies are similarly funded, including the Federal Reserve itself; the Federal Deposit Insurance Corp., which insures bank deposits; the Office of the Comptroller of the Currency, which charters and regulates all national banks; and potentially even Social Security and Medicare, which are funded by a specific tax.

In oral arguments at the high court on Tuesday, Solicitor General Elizabeth Prelogar defended the CFPB's funding mechanism, noting that the Constitution's framers created similar funding structures.

"The very first Congress" enacted an appropriation without specifying a fixed sum "up to a particular cap of spending," Prelogar told the justices. "That's just how the CFPB funding mechanism is structured today, and there have been countless appropriations that looked like this throughout history." There are "more than 400 uses of this kind of discretion," she added.

But Chief Justice John Roberts seemed skeptical, calling her argument "a very aggressive view of Congress's authority."

Justice Neil Gorsuch asked whether the current rules would apply if the CFPB funds were capped at $1 trillion instead of the current $600 million. But Justice Brett Kavanaugh interjected, "Congress could change it tomorrow."

Representing the payday lenders on the other side of the argument was Noel Francisco, who served as solicitor general in the Trump administration.

"Congress has never authorized an agency to pick its own perpetual appropriation. And if it can do that for the CFPB," Francisco said, "then you have blessed a regime in which Congress can authorize the executive branch to spend whatever it wants to fund the entire government."

But several of the justices, both conservative and liberal, flatly told Francisco that his argument made no sense because it had no limiting principle.

It's "not intelligible," said Justice Amy Coney Barrett. "I think we're all struggling to figure out ... what's the standard that you would use." Even "assuming that you're right that there has to be something more than the $600 million, how do you decide how much is too much?"

Francisco replied, "It's difficult to come up with a hard and fast rule."

Justice Elena Kagan caustically observed that $600 million basically amounts to "a rounding error in the federal budget." And Justice Sonia Sotomayor added, "I'm at a total loss," noting that 60% of the federal budget is funded through "standing appropriations," not line-item appropriations.

Meanwhile, Kavanaugh questioned Francisco's argument that the CFPB is funded by a perpetual appropriation. "The word 'perpetual' — I'm having trouble with because it implies that it's entrenched and that a future Congress couldn't change it, but Congress could change it tomorrow. And there's nothing perpetual or permanent about this," Kavanaugh said.

Moments later, Justice Ketanji Brown Jackson raised a different concern, worrying about the "separation of powers" and the "judiciary suddenly becoming a super legislator."

Francisco seemed to suggest that the problem with the CFPB funding is that it doesn't go through an annual, line-item congressional appropriation.

But Justice Kagan pointed out that standing appropriations like this one were common at the founding. "So you're just flying in the face of 250 years of history," she said.

Justice Clarence Thomas also seemed frustrated. Trying to get a succinct answer, he asked Francisco to "complete this sentence: funding of the CFPB violates the appropriations clause because ...?"

"Because Congress has not determined the amount that this agency should be spending," Francisco replied. "Instead, it has delegated to the director [of the CFPB], the authority to pick his own appropriation subject only to an upper [capped] limit."

A decision in the case is expected by the end of the court term. [Copyright 2023 NPR]