CFPB Wins Appeals Victory Ahead of Supreme Court Case

The Consumer Financial Protection Bureau has scored a legal victory ahead of its fateful Supreme Court case.

A federal appeals court ruled Thursday (March 23) that CFPB funding via the Federal Reserve is constitutional.

The unanimous ruling by the U.S. Court of Appeals for the Second Circuit came in a case in which New York-based debt collection firm, the Law Offices of Crystal Moroney PC, challenged the legality of a CFPB subpoena.

According to the ruling, the court rejected Moroney’s argument that the agency’s funding from the Fed — outside the Congressional appropriation process — is unconstitutional.

The question of how the CFPB is financed is at the heart of a case set to go before the Supreme Court, PYMNTS reported last month.

The high court has agreed to hear arguments on an October ruling by the U.S. Court of Appeals for the Fifth Circuit, which found the CFPB’s Fed funding unconstitutional.

The justices are due to hear the case in the next term, which starts in October, with a decision not expected until 2024.

In the petition filed last year by the President Joe Biden administration on behalf of the CFPB asking the Supreme Court to hear the case, the White House said “the Court of Appeals’ unprecedented understanding of the Appropriations Clause threatens the ability of the CFPB to function and risks severe market disruption.”

The appeals court, for its part, said in its October ruling that the funding should be drawn from Congress (where the money is taken from the U.S. Treasury).

In the ruling Thursday, the Second Circuit judges wrote that they couldn’t find any Supreme Court precedent that would support the Fifth Circuit’s decision.

“To the contrary, the Court has consistently interpreted the Appropriations Clause to mean simply that ‘the payment of money from the Treasury must be authorized by a statute,” the three-judge panel wrote.

As PYMNTS noted last month, a decision on the agency’s funding “would have far-reaching impact on the regulations, fines — and indeed, authoritative reach — of the CFPB.”

It’s part of a longer pattern for a government entity that has long been ground zero in Washington in the ongoing debate on financial services regulations.