CFPB v. CFSA Analysis

The Supreme Court upheld the constitutionality of the CFPB's funding mechanism in its 7-2 decision in CFPB v. CFSA. Although I can't say I love the opinion's reasoning, the Court got to the right result, as Patricia McCoy and I urged in an amicus brief. The ruling does have some interesting omissions and politics, but its ultimately impact will be the normalization of the CFPB, something that's good for consumers and businesses alike.

My issue with the Court's reasoning is that this is yet another decision in which the Court plays at dictionary-as-law and amateur history. If Constitutional jurisprudence turns on dictionary forays, we might as well have a generative AI Supreme Court. I'd like to think that legal education doesn't boil down to "look it up in Webster's".  As for the history, my issue is not with the accuracy of the history in this instance, but with the do-it-yourself-at-home nature of the analysis. Supreme Court Justices aren't just historians, and when they foray into English constitutional history, in particular, they are in real danger of getting out over their skis. To that end, I appreciate Justice Jackson's pithy concurrence that doesn't bother with the English legal history. 

The Dogs That Didn't Bark

Perhaps the most interesting thing about the opinions is what's missing. There is no mention anywhere in the opinion, concurrences, or dissent of the "dual insulation" theory that animated the 5th Circuit's decision, perhaps because that theory was based on an embarrassing misunderstanding of the actual mechanics of the CFPB's funding. CFSA itself backed off this theory a bit, but given how heavily the 5th Circuit leaned into dual insulation, one would have thought there would be some discussion. I'd like to think that my brief with Pat might have foreclosed the viability of the dual insulation argument.

The Alito-Gorsuch dissent made a little noise toward the "mosaic theory" of CFPB constitutional infirmity, meaning that even if no single feature of the CFPB is constitutionally fatal, the constellation of unique features is in concert nonetheless offensive. It's a theory I always thought could have some legs given the platypus design of the CFPB, taking a feature from here and from there to create a combined result that doesn't look exactly like any other agency. The mosaic theory didn't require a court to conclude that any one feature was obviously too much, only that the total synergies did not fit within constitutional boundaries because of the overall impact on accountability.

The door to the mosaic theory was substantially closed, however, with the Seila Law decision in 2020. Once the CFPB Director became removable for-cause, it became much harder to make the mosaic theory work, as the remaining differences from other agencies just didn't have the same cumulative effect on accountability to the executive or legislative branches. In retrospect, the failure of CFPB opponents to tee up the mosaic theory in an initial case before Seila Law was a huge mistake in legal strategy. (I'm not sure how well-coordinated the strategy ever was, as there were a number of players and law firms jockeying to be in the driver's seat.) The opponent's strategic mistake was then compounded by then-Judge Kavanaugh's 2016 DC Circuit decision in PHH (subsequently reversed en banc), which focused on for-cause removal. In any event, it's curious to see now-Justice Kavanaugh joining  the majority in the CFSA case.

Unsurprising Outcome, but Surprising Politics

The outcome in this case did not surprise me. If the Court had struck down the Bureau's constitutionality it would have had a hot mess on its hands, and its lack of interest in the remedy issue at oral argument was a strong signal that it wasn't going in that direction. Still, it is a bit surprising to see the Court's opinion written by Justice Thomas. Justice Thomas framed the issue in the case narrowly—the scope of the appropriations clause—a framing that let him sidestep all of Justice Alito's fears about a Stuart Restoration (although it would be fun if we could all dress like Captain Hook...). Still, the Justices certainly understood the financial market chaos that would have resulted if they ruled against the CFPB and how such a ruling would have opened the door to broader attacks on the constitutionality of a good swath of the regulatory state. That Justice Alito could only get Justice Gorsuch to sign on to this ruat caelum approach to the modern administrative state is an interesting indication of the degree to which Chief Justice Roberts, and Justices Thomas, Kavanaugh, and Coney-Barrett are actually institutionalists, who will hesitate to sign on to other far-reaching attacks on the administrative state. Put another way, the Court might be more moderate on the administrative state then perceived.

Implications

CFSA probably means the end of constitutional challenges to the Bureau. It's here to stay in its current form and powers absent Congressional action. That's a good thing for consumers and businesses alike because of the stability it creates in the regulatory regime. No one benefits from existential strum und drang regarding a regulatory system. Yes, there will continue to be differences on the margin between Democratic and Republican administrations, but those changes will affect only a handful of regulations and the scope of supervisory and enforcement actions. They will not affect the basic idea of Bureau supervision or 95% of the regulations promulgated by the Bureau. In short, the dynamics with the Bureau will now start to resemble those of most federal agencies:  there will be legal challenges to specific regulations and enforcement actions (and I think the CFSA case will still have to be remanded for the statutory issues involved), but those will be focused, targeted challenges, not existential ones.

Comments

[Janeway]

Next up, end the National Associations that can export 32% interest rates from South Dakota to the other 49 states and sidestep both criminal and civil usury of the state the consumer actually lives in.