The US Court of Appeals for the Second Circuit ruled on March 23 that the current funding structure for the Consumer Financial Protection Bureau (CFPB) is constitutional.

Specifically, in Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, P.C., the court held that the CFPB's independent funding through the Federal Reserve System does not violate either the Appropriations Clause or the nondelegation doctrine.

This decision is the opposite of the decision reached by the Fifth Circuit on a similar question in October 2022, which we have previously reported on. As we also have previously reported on, the Supreme Court has already decided to hear the CFPB's appeal from the Fifth Circuit's decision.


The Dodd-Frank Act created the CFPB as an independent regulatory agency housed within the Federal Reserve System. Relatedly, the CFPB's funding scheme is unique across the independent executive agencies of the federal government in that the CFPB is not funded with periodic Congressional appropriations. Rather, the CFPB receives funding directly from the Federal Reserve System, which is itself funded outside the appropriations process. Each year, the CFPB simply requests an amount determined by the CFPB director to be "reasonably necessary to carry out" the agency's functions. The funds received by the CFPB, in effect, reduce amounts that would otherwise flow to the general fund of the Treasury, as the Federal Reserve is required to remit surplus funds in excess of a limit set by Congress.

The respondent-appellant in the case, the Law Offices of Crystal Moroney (Moroney), is a law firm that principally provides legal advice and debt collection services to clients. The CFPB served Moroney with two civil investigative demands (CIDs) for documents. In challenging the CFPB action, Moroney argued that the CID cannot be enforced because, among other reasons, the funding structure of the CFPB violates the Appropriations Clause of Article I of the Constitution, and that Congress violated the nondelegation doctrine when it created the CFPB's funding structure.


The court found that it is indisputable that the CFPB's funding structure was authorized by the Dodd-Frank Act—a statute passed by Congress and signed into law by the President. In short, because the CFPB's funding structure was authorized by Congress and bound by specific statutory provisions, the court found that the CFPB's funding structure "does not offend the Appropriations Clause." In doing so, the court declined to follow the US Court of Appeals for the Fifth Circuit's October 2022 decision in Community Financial Services Association of America, Ltd. v. CFPB after the court found no support for the Fifth Circuit's conclusion in Supreme Court precedent, in the Constitution's text, or in the history of the Appropriations Clause. Although acknowledging that the CFPB's funding does not fall under the annual appropriations process typical of most Congressional spending, the court found that it could not conclude that Congress abdicated its appropriation obligation entirely in creating the CFPB's funding structure. The court also concluded that the CFPB's funding structure is proper under the nondelegation doctrine because Congress "plainly provided an intelligible principle to guide the CFPB in setting and spending its budget," which would satisfy what the court called the nondelegation doctrine's "lenient standard."

This decision officially creates a circuit split regarding the constitutionality of the CFPB's funding structure, a circumstance that would normally prove helpful in having the US Supreme Court weigh in to resolve such legal uncertainty. As indicated above, however, the US Supreme Court announced on February 27 that it would grant the CFPB's petition for certiorari in Community Financial Services Association of America, Ltd. v. CFPB, but declined to expedite the case and hear it this term as requested by the CFPB and instead will hear the case next term. The Supreme Court's decision not to hear the case this term means this legal uncertainty, and conflicting court decisions, will continue to loom over all CFPB actions both within the Second and Fifth Circuits and beyond (particularly in pending cases where defendants can be expected to assert the Appropriations Clause issue as a defense). Until this process is resolved sometime later this year or next year, however, the CFPB should be expected to generally operate on a business-as-usual basis.

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