When an appellate decision starts with a quote from the Federalist papers about despotism, you know this decision presents a bumpy ride. In Community Financial Services Assoc. of Ame. v. Consumer Financial Protection Bureau, No. 21-50826 (5th Cir. 10/19/2022), the Fifth Circuit quotes from the Federalist papers six different times. The Federalist papers have their place in jurisprudence, but they are not precedent. It is the rare appellate opinion that quotes from the Federalist papers even once.

The Fifth Circuit oversees appeals for Louisiana, Mississippi and Texas. This is the court of appeals for federal district court in those three states. The Fifth Circuit has generally been pretty conservative for a few decades. But, with half a dozen Trump appointees, it seems to have entered a whole other level of conservative. In one recent decision, Community Financial Services, the court addresses the 2017 Payday lending rule. That rule prevents lenders from debiting a person’s account more than twice if the funds are not available. Prior to establishment of the rule, lenders – usually payday lenders – would debit the account multiple times, so as to rack up more fees.

The Community Financial Services Assoc. is the organization that represents those payday lenders. The CFSA sued attacking the rule. On appeal, the Fifth Circuit panel, comprised of three Trump appointees, found the appeal “missed the mark,” except for the attack on the constitutionality of the CFPB itself. In an odd decision, the court found the funding mechanism was unconstitutional. The CFPB is funded by funds which pass through the Federal Reserve. The Fifth Circuit panel was concerned that the funding was not the result of annual appropriations by Congress. It pointed to a normally mundane and non-controversial provision in the Constitution that says no money shall be drawn from the Treasury except by appropriation by Congress. The provision does not require an annual, weekly or hourly appropriation. It simply says Congress must appropriate any money which it spends. That language imposes no time requirement.

Second Agency Funding

The panel found that funding which passes through another agency to render the CFPB unconstitutional. Yet, numerous agencies are funded in ways not involving an annual appropriation: the Federal Reserve itself, the Federal Deposit Insurance Corporation, and others. The court in Community Financial does acknowledge that other courts that have addressed the issue have found the CFPB to be constitutional. As the panel noted, the constitutionality of the CFPB has been “heavily” litigated. This is the first decision to find the agency’s funding mechanism to be unconstitutional.

The court’s reasoning disregards the decision in Cincinnati Soap Co. v. U.S., 301 U.S. 308 (1937). That decision held that the appropriations clause simply requires that Congress pass a law allowing expenditures. As the Cincinnati Soap court said, “that Congress has wide discretion in the matter of prescribing details of expenditures for which it appropriates must, of course, be plain.” Cincinnati Soap, 301 U.S. at 322. There is no requirement in the Constitution or in caselaw that Congress pass an annual appropriation for a particular agency. The court’s opinion even acknowledges that Congress has sole power over spending. So, if Congress – with exclusive power to appropriate monies as it sees fit – passes a law allowing funding through a second agency, how is that not constitutional? The court does not address that question. See the decision here.

And, now we know that funding through a second agency represents despotism. … Who knew?