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U.S. 2nd Circuit Appeals Court Rules CFPB Constitutional

David Krechevsky
Mar 23, 2023

Decision comes as Supreme Court prepares to review 5th Circuit Court's opposite ruling on the bureau.

In a ruling issued Thursday, a three-judge panel of the U.S. Court of Appeals for the Second Circuit ruled that the Consumer Financial Protection Bureau’s funding structure does not violate the U.S Constitution.

The decision joins another appeals court ruling that prompted the CFPB to petition the U.S. Supreme Court to review whether the bureau’s funding method is constitutional.

Thursday’s decision was issued in an appeal of a lawsuit against the CFPB filed by the Law Offices of Crystal Maroney, based in New York. The firm provides legal advice and services to clients seeking to collect debt. 

The CFPB, which regulates the debt collection industry, had served Moroney with a civil investigative demand (CID) for documents, which it sought to enforce by filing a petition in the U.S. District Court for the Southern District of New York.

While that petition was pending, the U.S. Supreme Court issued its opinion in a separate case, Seila Law LLC v. CFPB, ruling that a provision in the federal law that created the bureau and protected its director from removal other than for cause was unconstitutional. 

Concerned about its ability to enforce the CID following that ruling, the CFPB filed a notice to ratify the CID against Moroney, and the district court later approved that petition.

Moroney appealed that decision, arguing that the CID can’t be enforced because of the Seila Law ruling, but also because the way the CFPB is funded violates the Appropriations Clause of Article I of the U.S. Constitution as well as violating the nondelegation doctrine, which holds that Congress cannot delegate its powers to other entities. 

When the CFPB was created as part of the 2010 Dodd-Frank financial overhaul law, Congress chose to exempt the bureau from annual appropriations. Instead, the CFPB is funded by transfers from the Federal Reserve. While the funding is capped at 12% of the Fed’s annual budget, it cannot reject requests that fall under the cap.

In its decision Thursday, the Second Circuit’s three-judge panel ruled that the CID was not void because the CFPB director “was validly appointed,” and that the “CFPB’s funding structure is not constitutionally infirm under either the Appropriations Clause or the nondelegation doctrine.” It also affirmed the lower court’s decision enforcing the CID. 

The unanimous decision was issued by the three-judge panel, which included two Republican appointees.

The Supreme Court in February granted the CFPB’s petition seeking a review of a lower court’s ruling that the agency’s funding method is unconstitutional. 

The CFPB filed its petition for a writ of certiorari in mid-November 2022, asking the high court to review the lower court ruling during its current session. The plaintiff in the case — the Community Financial Services Association of America, a payday lending trade group — also filed a petition seeking a review, but asked the court to hear it in its next term.

The Supreme Court granted writs of certiorari to both the CFPB and the association, and listed it among the cases it will hear during its next term, which begins in October 2023.

According to, a writ of certiorari orders a lower court to deliver its record in a case so that the higher court may review it. The Supreme Court uses certiorari to select most of the cases it hears. 

The CFPB’s appeal stemmed from a federal appeals court ruling issued on Oct. 19, 2022. The decision by a three-judge panel of the Fifth U.S. Circuit Court of Appeals in New Orleans was issued as part of a ruling on an appeal of a case brought by payday lending groups. The Community Financial Services Association of America and Consumer Service Alliance of Texas had sued the CFPB, challenging the validity of its 2017 payday lending rule, which regulates high-interest rate lenders.

The plaintiffs contended that in enforcing the rule, the CFPB “acted arbitrarily and capriciously and exceeded its statutory authority,” according to court documents. The groups also contended that the CFPB “is unconstitutionally structured, challenging the bureau director’s insulation from removal, Congress’s broad delegation of authority to the bureau, and the bureau’s unique, double-insulated funding mechanism.”

The U.S. District Court for the Western District of Texas rejected those arguments, but that decision was appealed to the Fifth Circuit Court.

Mar 23, 2023
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