Alston & Bird Consumer Finance Blog

Court of Appeals

Second Circuit Deepens Circuit Split over CFPB Funding Structure

A&B ABstract:

On March 23, 2023, the Second Circuit held the Consumer Financial Protection Bureau’s (CFPB) funding structure is constitutional.  This decision comes on the heels of the Supreme Court granting certiorari to review the Fifth Circuit’s ruling in Community Financial that reached the opposite conclusion.

The Second Circuit’s Ruling

The Second Circuit case, styled Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, looks at a challenge to a civil investigative demand (CID) for documents made to a law firm that principally advises and services clients seeking to collect debts.  On appeal, the law firm argued the CID could not be enforced because, for among other reasons, the funding structure of the CFPB violated the Appropriations Clause of Article I of the Constitution.

Rejecting this argument, the Second Circuit held that the Appropriations Clause provides “simply that no money can be paid out of the Treasury unless it has been appropriated by an act of Congress.”  That is, if a payment of money from the Treasury is “authorized by statute,” then it does not run afoul of the Appropriations Clause.  And “[t]here can be no dispute that the CFPB’s funding structure was authorized by the CFPBA – a statute passed by Congress and signed into law by the President.”

In reaching this conclusion, the Second Circuit declined to follow the Fifth Circuit’s rationale in Community Financial.  There, the Fifth Circuit reasoned that the CFPB’s funding structure violated the separation of powers embodied in the Appropriations Clause because it was “doubly” insulated from Congressional control.  Specifically, the Fifth Circuit posited that Congress had first ceded control directly over the CFPB’s budget by insulating it from review during the annual appropriations process and second conceded control indirectly by providing that the CFPB’s funding be drawn from a source that was itself outside the appropriations process.

In response to this, the Second Circuit explained that, in its view, the design of the Constitution in the Appropriations Clause was to ensure that the purpose, limit, and fund of every expenditure be ascertained by a previous law.  Thus, as long as the CFPB’s budget had an articulated purpose (as set forth in the CFPA), came from an articulated fund (the earnings of the Federal Reserve System), and had articulable limits (a 12% cap set by Congress in the CFPA), then it was constitutional.  In short, Congress specified the purpose, limit, and fund of its appropriation for the CFPB’s budget in the CFPA, which was all that the Constitution required.


Whether the CFPB’s funding structure is constitutional poses a possibly existential threat to the CFPB’s operations.  The Second Circuit’s decision deepens the split on the issue, which the Supreme Court has already begun undertaking to resolve.  Stay tuned for further updates on how the Supreme Court resolves this split.