The 5th U.S. Circuit Court of Appeals has mounted a relentless assault on the federal government’s ability to function for a number of years now. After Donald Trump stacked the bench with Federalist Society stalwarts, its new far-right majority attempted to destroy Obamacare, overrule the military chain of command, paralyze the Biden administration—in short, to prevent the democratic branches from governing the country. The 5th Circuit’s latest salvo came on Wednesday, when three Trump appointees held that the Consumer Financial Protection Bureau is unconstitutional and struck down its enforcement authority. Their contradictory, incoherent decision may well be too extreme even for this Supreme Court.
Republican attorneys have attempted to dismantle the CFPB from the moment Congress created it in response to the 2008 financial crash. The agency protects consumers against exploitative fraud and deceit in home mortgages, credit cards, consumer loans, and retail banking. It has taken special interest in payday lenders, which are notorious for issuing predatory loans—with sky-high interest and hidden fees—to customers who will never be able to pay them off.
In 2017, the CFPB issued a rule to halt a common practice among payday lenders: repeatedly attempting to withdraw money from a borrower’s account after it becomes obvious that there are insufficient funds. Each failed attempt incurs a slew of fees for the borrower that add up to hundreds of dollars. Lenders may try as many as 11 withdrawals in one day, or split payments into multiple withdrawals, to maximize their profits—long after they discover the borrower cannot pay. This behavior is exactly the kind of scam that Congress directed the CFPB to combat. So the agency barred lenders from trying to withdraw further payment after two consecutive attempts have failed due to insufficient funds.
Predictably, payday lenders fought back, asking the federal courts to block the rule. They were represented by Jones Day, the GOP-aligned law firm whose lawyers flooded the judiciary and executive branch under Trump. Jones Day argued that the new rule exceeded the CFPB’s statutory authority. But it also mounted a more ambitious argument: The entire agency, it claimed, is unconstitutional. Why? Because the CFPB is funded independently: Rather than relying on an annual appropriation from Congress, it draws its budget from the Federal Reserve—which, in turn, is primarily funded by interest earned on securities. This independent funding of the CFPB, Jones Day said, violates the constitutional separation of powers, and renders the agency’s work illegal.
This is actually the second effort to declare the entire CFPB unconstitutional. The first effort challenged a provision of Dodd–Frank, the law that created the Bureau, which gave the agency’s director a five-year term and barred the president from firing them. Republican lawyers argued that this protection against removal infringed on the separation of powers in 2020, the Supreme Court agreed by a 5–4 vote. But it also rejected Republicans’ solution—the destruction of the CFPB by judicial fiat. Instead, the court simply granted the president authority to fire the CFPB director and left the agency otherwise intact.
So Jones Day is trying again. Its lawyers seized upon the payday lender rule to challenge the CFPB’s independent funding. They knew the 5th Circuit would be receptive, since seven judges have already professed their belief that the agency is unconstitutional. And sure enough, a three-judge panel of Trump appointees—Cory Wilson, Kurt Engelhardt, and Don Willett—effectively struck down the entire agency on Wednesday in a unanimous opinion by Wilson.
Their reasoning is not just bizarre; it is utterly nonsensical, and flatly foreclosed by precedent. Wilson zeroed in on the Constitution’s appropriations clause, which states that “no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The CFPB, he noted, is not funded through annual appropriations bills, but through money drawn from the Federal Reserve, pursuant to a formula set by Congress. This “perpetual insulation from Congress’ appropriations power,” he insisted, is illegal; it renders the agency “no longer dependent and, as a result, no longer accountable to Congress and, ultimately, to the people.” An “innovation with no foothold in history or tradition,” he concluded, “cannot be reconciled with the appropriations clause and the clause’s underpinning, the constitutional separation of powers.”
At least seven other federal courts have already considered and rejected this argument, and it’s easy to see why. Many other financial regulators are funded outside annual appropriations, including the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, and the Federal Housing Finance Agency. If the CFPB’s funding is unlawful, then all those agencies are constitutionally suspect, too. But they are not, because, as the Supreme Court has explained, the appropriations clause means “simply that no money can be paid out of the Treasury unless it has been appropriated by an act of Congress.” It does not require funding to arrive in an annual bill that Congress stamps with the label “appropriations.” In the Supreme Court’s words, the Constitution merely requires funding to be “authorized by a statute”—not specifically the annual appropriations bill, but any duly enacted law.
So where did Wilson get the idea that the Constitution requires a single, specific method of appropriations? He made it up. The Supreme Court has never leveraged the appropriations clause to restrict a funding scheme authorized by Congress, or to restrict an agency’s authority. It has never even hinted at the notion of some constitutional limit on agency funding outside of annual appropriation bills. To the contrary, SCOTUS has affirmed Congress’ broad latitude to decide how agencies receive their budget. Absent any supportive precedent, Wilson resorted to pure partisan howls, quoting the Founding Fathers’ sweeping rhetoric about “elective despotism” and “political liberty.” But emotional appeals to the founding principles, framed in the broadest possible terms, is no substitute for precedent and logic.
In fact, many of Wilson’s cherrypicked quotes about Congress’ “exclusive power over the federal purse” actually cut against his reasoning. Not once does he consider the fact that he is encroaching upon that “exclusive power” by striking down a funding process enacted by Congress. He never considers the possibility that he himself is violating the separation of powers by vetoing an ongoing appropriation authorized by statute. While purporting to defend Congress’ constitutional prerogatives, Wilson—an unelected, life-tenured judge—is seeking to seize them for himself.
To make matters worse, Wilson expressly rejected the minimalist approach that SCOTUS has demanded after finding that an agency is unconstitutionally structured. He held that the CFPB could not enforce the payday rule—or, by extension, any other regulation, since every single action rests on the “improper use of unappropriated funds.” The agency will surely appeal, asking the Supreme Court to restore its enforcement authority. And the court may well put the decision on hold. But in the meantime, anyone penalized by the CFPB can just ask a court to throw out the entire case against them. The 5th Circuit has taken the astonishing and unprecedented step of essentially obliterating an entire federal agency tasked with regulating a significant segment of the national economy.
Even on this Supreme Court, that step is probably a bridge too far—especially since it augurs future decisions hobbling almost every other financial regulator. SCOTUS already had an opportunity to blow up the CFPB. It declined. Unless the justices want the 5th Circuit to eradicate the federal government’s ability to prevent another crash, they have an obligation to reverse Wednesday’s garbled, lawless ruling.
