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CFPB Funding Structure Under Fire in Payday Lending Rule Appeal

May 16, 2022, 10:00 AM

A federal appeals court appears poised to void the Consumer Financial Protection Bureau’s funding structure, in a ruling that would throw a fresh shadow across the beleaguered agency’s work.

The bureau is funded through the Federal Reserve System, not via a direct congressional appropriation. The constitutionality of that arrangement is a question in several court cases across the country.

A US Court of Appeals for the Fifth Circuit panel, which is weighing a challenge to the CFPB’s payday lending rule, has signaled it’s skeptical of the funding model. A ruling against the CFPB’s funding mechanism would set up a fight that could ultimately go before the US Supreme Court.

If the funding model is discarded, the CFPB likely would be subjected to the congressional appropriations process, giving Republican lawmakers hostile to the agency more leverage over it. If its funding structure is deemed unconstitutional, the agency may have to redo the regulatory enforcement actions it took while being funded through the Fed, in moves that could also be challenged in court.

“We are in uncharted territory here,” said Todd Phillips, the director of financial regulation and corporate governance at the Center for American Progress, a progressive think tank.

When it created the CFPB in 2010, a Democratic-controlled Congress tried to insulate the agency from political pressure by putting it within the Federal Reserve System and mandating a single director who could only be fired for cause.

Coming off the financial crisis, Congress decided that the CFPB “was just too important to be left up to the annual political battle,” said Liz Boison, a former top CFPB official and currently a Hogan Lovells LLP partner.

The Supreme Court, however, in its June 2020 decision in Seila Law v. CFPB, said the president could fire the director for any reason.

Questions about the CFPB’s independent funding have been bubbling in litigation against the bureau since its inception, but courts so far have either ignored or batted them away.


The Fifth Circuit has signaled it may be the first appeals court to rule against the agency’s funding mechanism in Community Financial Services Association of America Ltd. v. CFPB, a case over the agency’s payday lending rule.

A federal district judge ruled in the case that the CFPB’s funding met constitutional muster, so the question is ripe before the Fifth Circuit, said Elliott Z. Stein, a Bloomberg Intelligence analyst.

One of the judges who heard oral argument in the case on May 9, US Circuit Judge Kurt D. Engelhardt, signed on to a concurring opinion in a separate case that called the CFPB’s funding structure “indefensible.”

Engelhardt noted during the May 9 argument that the CFPB’s funding differs from other agencies like the Federal Deposit Insurance Corp. and the Fed, which aren’t subject to appropriations but get their money from fees charged to banks. The Fed also is funded through capital markets activities.

To Engelhardt and the other Fifth Circuit judges, having the CFPB housed inside the Fed shields it from accountability in a way that’s more pronounced than other independently-funded agencies.

“Where does that exist anywhere else?” Engelhardt asked.

Judges Don R. Willett and Cory T. Wilson, the other members of the Fifth Circuit panel, didn’t sign on to the earlier concurrence. But they may share Engelhardt’s view, Stein said.

“I’d be surprised if Engelhardt can’t get at least one of them to join him in holding that the CFPB’s funding structure is unconstitutional,” Stein said.

Road Ahead

If the Fifth Circuit voids the funding model, the agency likely would appeal the ruling to the full Fifth Circuit, and ultimately to the Supreme Court if necessary.

A litigant in at least one other case has taken notice of developments in the Fifth Circuit.

Attorneys for online lender CashCall Inc., on May 11 asked the US Court of Appeals for the Ninth Circuit to address the funding question in litigation involving a CFPB enforcement action.

To contact the reporter on this story: Evan Weinberger in New York at

To contact the editors responsible for this story: Keith Perine at; Melissa B. Robinson at