CFPB's Legal Challenge to Unconstitutional Funding in 5th Circuit

The Consumer Financial Protection Bureau again faces an existential threat in the courts — this time over whether the agency’s funding by the Federal Reserve System is constitutional.Five judges on the U.S. Court of Appeals for the Fifth Circuit signaled their view that the CFPB’s funding mechanism violates the Constitution’s separation of powers because it happens outside of the congressional appropriations process.The opinion is not binding, and the five judges represent less than a third of the 17 active judges on the Fifth Circuit Court of Appeals. Still, a decision by the Second Circuit Court of Appeals in another legal challenge to the CFPB’s finding source is expected in the next six months. To read more, click here. The judges stated in part: "Here, the CFPB’s structure doubly contravenes the Constitution’s separation of powers. First, “the CFPB’s leadership by a single individual removable only for inefficiency, neglect, or malfeasance violates the separation of powers.” Seila Law, 140 S. Ct. at 2197. Second, the CFPB’s budgetary independence likewise violates the separation of powers. Collins drives the remedial inquiry pertaining to the CFPB Director’s unconstitutional removal protections, but it says nothing about the remedy for the CFPB’s independently unconstitutional funding mechanism. To remedy the separation of powers violation arising from the CFPB’s budgetary independence, I see no other option than dismissing the enforcement action against these appellants. The reason is simple. Just as a government actor cannot exercise power that the actor does not lawfully possess, so, too, a government actor cannot exercise even its lawful authority using money the actor cannot lawfully spend. Indeed, a constitutionally proper appropriation is as much a precondition to every exercise of executive authority by an administrative agency as a constitutionally proper appointment or delegation of authority."