After yesterday's term-opening argument put everyone except grammarphiles asleep with its riveting discussion of whether "and" could mean "or," today's SCOTUS case was more lively and much easier to understand ... at least superficially! Just how specific does Congress have to be when it makes fiscal appropriations to the executive without violating the Constitution? At stake ... possibly the fate of an entire federal agency and all of the decisions it has made since its creation over a decade ago.
As a response to the perceived abuses by financial institutions that led directly to the financial crisis of 2008-09 and caused significant consumer harms, Congress in 2010 passed the Dodd-Frank Act which authorized the creation of the CFPB, which opened for business in 2011. Since that time, the CFPB has sought to issue regulations covering all sorts of consumer financial products, seeking to ensure that such products are fit for the purpose they are marketed for and that consumers are not being defrauded or otherwise taken advantage of when dealing with these financial institutions. In 2017, the CFPB took aim at the payday lending industry, promulgating something called the "Payday Lending Rule." For our purposes, it doesn't matter what is actually in that rule, because challenges to the content of the rule failed in the lower courts. The Respondents in this case, however, won on more desperate argument - an argument that challenged the very structure of the organization and its method of funding, which the 5th Circuit Court of Appeals found violated the Constitution. If upheld, this would most likely invalidate every action taken by the CPFB since its inception ... a rather stunning consequence that could gut many consumer protections that have become relatively standard.
Of course, to understand the rules around making appropriations we have to look to the Constitution. There are two relevant passages. The first, and most important, is actually found in Section 9 of Article I of the Constitution (a provision that nominally deals with LIMITATIONS on Congress), which states:
This at least gives us our baseline - Congress has to pass a law to appropriate funds. The President can't just dip into the treasury because he feels like it. But that gives quite a bit of wiggle room - what exactly is an appropriation? How specific does it have to be? If it is not specific enough, does Congress risk delegating its Constitutional power of the purse to the President, thus violating the separation of powers concept that underlies the Constitution? These are the questions that were at the heart of this case.
When Congress created the CFPB it chose not to use a traditional funding allocation method, such as a yearly appropriation. Instead, it chose to fund the CFPB through the Federal Reserve. The Director of the CFPB makes a yearly appropriations request, and as long as the request does not exceed 12% of the Federal Reserve's total operating expenses, the funds are provided. The Respondents in this case successfully argued below that this did not meet constitutional muster because it allowed the CFPB to request whatever amount it wants (up to a limit), rather than directing the amount the agency would receive. Additionally, the appropriation was essentially made in perpetuity, with no set end date. This the Respondent views as an abrogation of Congressional responsibility to make a clear appropriation, thus delegating its powers to the Executive branch to essentially set its own appropriation. Further, the Respondent views the cap as so high that it will rarely if ever come into effect, rendering it useless as a check on inappropriate delegation of powers.
The Petitioner, represented by Solicitor General Elizabeth Prelogar, argued forcefully that this appropriation was really no different from a vast number of other congressional appropriations that do not set a specific number but instead use a "cap" system in which an appropriation is made in which an agency can spend up to a certain amount, but no more. In fact, historically this has been done since the very first Congress, and the very first appropriations that were made. A lot of effort is made to point out that the Customer Service created by the first Congress is quite analogous in funding method to the CFPB. Further, the Solicitor General pointed out that the only thing the Appropriations Clause says it that there has to be an appropriation by law ... but there are no other constraints listed in the Constitution. To drive this point home, the SG points to another Constitutional provision found in Article I, Section 8 called the "Army Appropriations Clause" which specifies that appropriations for the Army cannot last for longer than 2 years. By implication, if Army Appropriations are specifically capped at lasting for no more than 2 years while the standard Appropriations Clause has no such limitation, then the drafters of the Constitution were making a deliberate choice not to constrain such appropriations. A perpetual appropriation, therefore, is therefore no less valid than a yearly appropriation, according to the SG.
Much of the questioning today tried to get both lawyers to set out the limits of how much is too much. Could Congress make a general appropriation of a quarter quadrillion dollars to the Executive and say "spend it however you want to up to that amount?" How specific does the purpose have to be? What about the source of funding? Lots of hypotheticals were flying from Justices, most of them who were clearly signaling their general opinion of this case (more on that in a big). For the most part, the government was pushing for a reading of "appropriation" that was valid so long as an amount of some kind was specified (either a specific amount or a spending cap), with a purpose for the funding and with the source of funding identified. The fact that historical analogues to a particular spending method can be found would further bolster the constitutionality of a particular spending method.
On the opposite side of the argument, the Respondent argued that an appropriation must be much more specific and annualized. The "perpetual" nature of the CFPB appropriation was a cause for concern in the Respondents view, as was a cap that it saw as so high it was functionally irrelevant, meaning the CFPB director had the ability to request anywhere from roughly $0 to $600 million or anywhere in between, up to the statutory cap, which it sees as far too much discretion to the executive, thus encroaching on Congressional prerogatives. This argument ran into numerous problems, however. Justice Kagan, for instance, observed that no less a conservative, anti-regulation Justice than Scalia had no real problem with these types of appropriation caps:
There was also significant discussion that the $600 million cap was not so high as to be unbreachable, with the CFPB being within $30 million of it during the last fiscal year. Kagan kept on in this vein as the Respondent dug in, at one point telling him that he was flying in the face of 250 years of history in insisting that this kind of funding provision was unconstitutional.
Justice Jackson also waged a pitched battle against the Responded -- and Justice Alito -- by challenging the reasoning for many of the questions that were being asked in trying to force the government to state where the limits were in a generic case, or in forcing the government to find exact historical analogues for the same type of spending. After all, the right inquiry isn't "has this been done before" but rather "is this within the boundaries of what the constitution allows?" If so, whether there is historical precedent for shouldn't matter.
The Court also spent some time asking about what the proper redress in this case was, as the underlying court seemed to be suggesting striking down the entire CFPB and rolling back all of the rules it had previously promulgated. Justice Sotomayor got pragmatic and pointed out that it was very likely such a ruling could provoke a severe economic disruption. Looking for a middle ground with the Respondent, Justice Kagan asked if it might not be possible severe the offending provisions of the law but otherwise leave intact the CFPB itself. Counsel for the defendant was unwilling to give any ground up and pushed forward with the all or nothing strategy of aiming for the downfall of the CFPB.
So what is going to happen? I think the Petitioner has the better argument here. The Respondent was unable to articulate a clear rationale for why their proposed cutoffs or limitations would be necessary or even appropriate. Meanwhile, the Petitioner was able to point to plenty of previous examples that operated similarly to what was being proposed here. It seems fairly clear that Justice Jackson will end up aiding the Petitioners, while Justice Alito will end up siding with the Respondents.
Justices Gorsuch, Kavanaugh, and Barret were much closer to the center on this issue, and seemed quite persuadable. In the end I think we're going to see a 7-2 decision upholding the CFPB's authority. Look for Alito and Thomas to grasp at whatever straws they can find in order to try to defang the CFPB ... but I don't think they'll work this time. The direct text of the Constitution doesn't forbid the kind of appropriation at issue here, and history shows that it and its variations have been common. I think that will outweigh any arguments on the other side.
As a response to the perceived abuses by financial institutions that led directly to the financial crisis of 2008-09 and caused significant consumer harms, Congress in 2010 passed the Dodd-Frank Act which authorized the creation of the CFPB, which opened for business in 2011. Since that time, the CFPB has sought to issue regulations covering all sorts of consumer financial products, seeking to ensure that such products are fit for the purpose they are marketed for and that consumers are not being defrauded or otherwise taken advantage of when dealing with these financial institutions. In 2017, the CFPB took aim at the payday lending industry, promulgating something called the "Payday Lending Rule." For our purposes, it doesn't matter what is actually in that rule, because challenges to the content of the rule failed in the lower courts. The Respondents in this case, however, won on more desperate argument - an argument that challenged the very structure of the organization and its method of funding, which the 5th Circuit Court of Appeals found violated the Constitution. If upheld, this would most likely invalidate every action taken by the CPFB since its inception ... a rather stunning consequence that could gut many consumer protections that have become relatively standard.
Of course, to understand the rules around making appropriations we have to look to the Constitution. There are two relevant passages. The first, and most important, is actually found in Section 9 of Article I of the Constitution (a provision that nominally deals with LIMITATIONS on Congress), which states:
This at least gives us our baseline - Congress has to pass a law to appropriate funds. The President can't just dip into the treasury because he feels like it. But that gives quite a bit of wiggle room - what exactly is an appropriation? How specific does it have to be? If it is not specific enough, does Congress risk delegating its Constitutional power of the purse to the President, thus violating the separation of powers concept that underlies the Constitution? These are the questions that were at the heart of this case.
When Congress created the CFPB it chose not to use a traditional funding allocation method, such as a yearly appropriation. Instead, it chose to fund the CFPB through the Federal Reserve. The Director of the CFPB makes a yearly appropriations request, and as long as the request does not exceed 12% of the Federal Reserve's total operating expenses, the funds are provided. The Respondents in this case successfully argued below that this did not meet constitutional muster because it allowed the CFPB to request whatever amount it wants (up to a limit), rather than directing the amount the agency would receive. Additionally, the appropriation was essentially made in perpetuity, with no set end date. This the Respondent views as an abrogation of Congressional responsibility to make a clear appropriation, thus delegating its powers to the Executive branch to essentially set its own appropriation. Further, the Respondent views the cap as so high that it will rarely if ever come into effect, rendering it useless as a check on inappropriate delegation of powers.
The Petitioner, represented by Solicitor General Elizabeth Prelogar, argued forcefully that this appropriation was really no different from a vast number of other congressional appropriations that do not set a specific number but instead use a "cap" system in which an appropriation is made in which an agency can spend up to a certain amount, but no more. In fact, historically this has been done since the very first Congress, and the very first appropriations that were made. A lot of effort is made to point out that the Customer Service created by the first Congress is quite analogous in funding method to the CFPB. Further, the Solicitor General pointed out that the only thing the Appropriations Clause says it that there has to be an appropriation by law ... but there are no other constraints listed in the Constitution. To drive this point home, the SG points to another Constitutional provision found in Article I, Section 8 called the "Army Appropriations Clause" which specifies that appropriations for the Army cannot last for longer than 2 years. By implication, if Army Appropriations are specifically capped at lasting for no more than 2 years while the standard Appropriations Clause has no such limitation, then the drafters of the Constitution were making a deliberate choice not to constrain such appropriations. A perpetual appropriation, therefore, is therefore no less valid than a yearly appropriation, according to the SG.
Much of the questioning today tried to get both lawyers to set out the limits of how much is too much. Could Congress make a general appropriation of a quarter quadrillion dollars to the Executive and say "spend it however you want to up to that amount?" How specific does the purpose have to be? What about the source of funding? Lots of hypotheticals were flying from Justices, most of them who were clearly signaling their general opinion of this case (more on that in a big). For the most part, the government was pushing for a reading of "appropriation" that was valid so long as an amount of some kind was specified (either a specific amount or a spending cap), with a purpose for the funding and with the source of funding identified. The fact that historical analogues to a particular spending method can be found would further bolster the constitutionality of a particular spending method.
On the opposite side of the argument, the Respondent argued that an appropriation must be much more specific and annualized. The "perpetual" nature of the CFPB appropriation was a cause for concern in the Respondents view, as was a cap that it saw as so high it was functionally irrelevant, meaning the CFPB director had the ability to request anywhere from roughly $0 to $600 million or anywhere in between, up to the statutory cap, which it sees as far too much discretion to the executive, thus encroaching on Congressional prerogatives. This argument ran into numerous problems, however. Justice Kagan, for instance, observed that no less a conservative, anti-regulation Justice than Scalia had no real problem with these types of appropriation caps:
There was also significant discussion that the $600 million cap was not so high as to be unbreachable, with the CFPB being within $30 million of it during the last fiscal year. Kagan kept on in this vein as the Respondent dug in, at one point telling him that he was flying in the face of 250 years of history in insisting that this kind of funding provision was unconstitutional.
Justice Jackson also waged a pitched battle against the Responded -- and Justice Alito -- by challenging the reasoning for many of the questions that were being asked in trying to force the government to state where the limits were in a generic case, or in forcing the government to find exact historical analogues for the same type of spending. After all, the right inquiry isn't "has this been done before" but rather "is this within the boundaries of what the constitution allows?" If so, whether there is historical precedent for shouldn't matter.
The Court also spent some time asking about what the proper redress in this case was, as the underlying court seemed to be suggesting striking down the entire CFPB and rolling back all of the rules it had previously promulgated. Justice Sotomayor got pragmatic and pointed out that it was very likely such a ruling could provoke a severe economic disruption. Looking for a middle ground with the Respondent, Justice Kagan asked if it might not be possible severe the offending provisions of the law but otherwise leave intact the CFPB itself. Counsel for the defendant was unwilling to give any ground up and pushed forward with the all or nothing strategy of aiming for the downfall of the CFPB.
So what is going to happen? I think the Petitioner has the better argument here. The Respondent was unable to articulate a clear rationale for why their proposed cutoffs or limitations would be necessary or even appropriate. Meanwhile, the Petitioner was able to point to plenty of previous examples that operated similarly to what was being proposed here. It seems fairly clear that Justice Jackson will end up aiding the Petitioners, while Justice Alito will end up siding with the Respondents.
Justices Gorsuch, Kavanaugh, and Barret were much closer to the center on this issue, and seemed quite persuadable. In the end I think we're going to see a 7-2 decision upholding the CFPB's authority. Look for Alito and Thomas to grasp at whatever straws they can find in order to try to defang the CFPB ... but I don't think they'll work this time. The direct text of the Constitution doesn't forbid the kind of appropriation at issue here, and history shows that it and its variations have been common. I think that will outweigh any arguments on the other side.
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