Second Circuit Rules CFPB Funding Structure is Constitutional in Affirming CID Against Collection Law Firm

The Court of Appeals for the Second Circuit today issued a ruling that upheld a lower court’s decision to grant a petition from the Consumer Financial Protection Bureau to enforce a Civil Investigative Demand against a collection law firm, determining in the process that the funding structure of the Bureau is constitutional. The ruling conflicts one that was issued by the Court of Appeals for the Fifth Circuit and is now waiting for the Supreme Court to hear arguments.

A copy of the ruling in the case of CFPB v. Law Offices of Crystal Moroney can be accessed by clicking here.

The CFPB’s case against the Law Office of Crystal Moroney began more than five years ago when the CFPB sent the firm a CID as it began an investigation into the firm’s collection practices. The law firm, according to the CFPB, failed to fully comply with the CID, which led the agency to seek a federal judge to compel compliance. The law firm fought back, questioning the constitutionality of the CFPB as grounds for its non-compliance. The CFPB opted to abandon that case and avoid the legal fight over its constitutionality at the time. But hours after it dropped the case, the CFPB filed a new CID with the law firm, which it said was “nearly identical” to the original request.

The Appeals Court made a simple conclusion in issuing its ruling — if Congress said it was ok for the CFPB to be funded the way it is funded, then it can’t violate the Appropriations Clause of the Constitution. “Because the CFPB’s funding structure was authorized by Congress and bound by specific statutory provisions, we find that the CFPB’s funding structure does not offend the Appropriations Clause,” the Court wrote.

The CFPB is not funded through the traditional Congressional appropriations process, like most other federal agencies. Instead, it asks for money from the Federal Reserve Board. This was an intentional decision when the CFPB was created a decade ago because the authors of the law that created the CFPB wanted the agency to be independent and not subject to the whims of whichever political party happened to be in control at the time.

In looking what the Fifth Circuit did, the Second Circuit said it could find no precedent for the decision that it made — determining that the way the Bureau is funded is unconstitutional. “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 Second Circuit wrote.

The Moroney case has been around long enough that it lived through Seila Law v. CFPB, in which the Supreme Court ruled the leadership structure of the CFPB at the time was unconstitutional and led to the change that allows the president to fire the director of the agency at any time for any reason, instead of needing to be fired for cause.