Supreme Court Issues Surprise 7–2 Ruling

Three days ago, in a split 7-2 decision, the U.S. Supreme Court delivered a victory for the administrative state. Specifically, this Supreme Court ruling allows for a certain government agency to continue getting its funding not from the U.S. Treasury, but instead directly from the Federal Reserve Bank. Or in other words, it allows the government to use the Federal Reserve, which is a quasi-private bank, to fund its pet projects. And the implications this has in terms of a government that is not accountable to the people is rather far-reaching. And so, let's go through the details of this particular case together. To start with, shortly after the financial crisis of 2008, Congress passed a bill, you can see it up on your screen, called the Dodd-Frank Wall Street Reform and Consumer Protection Act. And after passing both the House and the Senate, it was subsequently signed into law by President Barack Obama. Now, included in this massive 848-page law was the creation of a new federal agency. It's called the Consumer Financial Protection Bureau, otherwise known as the CFPB. This new agency, it was the brainchild of Senator Elizabeth Warren, and its stated purpose was to regulate consumer financial products, things like credit cards, mortgages, as well as car loans. Proponents of this new agency, they said that it essentially served as a check on corporate power. However, this agency came with a bit of a unique twist, because unlike every other agency within the purview of the federal government, the Consumer Financial Protection Bureau got its funding not from the U.S. Treasury, but rather, they were funded directly by the Federal Reserve Bank. And, just as an aside, despite its official-sounding name, the Federal Reserve is, for all intents and purposes, a private banking system. The only difference is that the Board of Governors for the Fed is a government agency that does report to Congress. And so, in a certain sense, you can say it's both private and public, because on the one hand, member banks hold stock in the Federal Reserve, and they get dividends based on profits that it earns. But also, at the same time, the Board of Governors for the Fed is a government agency that is determined by Congress. If you want to delve deeper into what the Fed is and how it was created, I would highly recommend this book right here, The Creature from Jekyll Island, by Mr. Edward Griffin. It's a phenomenal book that really exposes the history of the Federal Reserve Bank. Regardless, though, getting back to the main point here, after its creation, the Consumer Financial Protection Bureau was the only government agency whose funding came not from the U.S. Treasury, but rather, from the Federal Reserve. The idea behind the funding scheme was that it would keep the agency independent. Although it may seek funding from Congress, the agency is excluded from the normal congressional appropriations process, and instead, receives most of the money it needs to operate from the Federal Reserve System, which collects fees from member banks. Now, eventually, a group representing payday lenders filed a lawsuit against the CFPB, arguing that this funding scheme was unconstitutional. And indeed, the Fifth Circuit Court of Appeals ruled in their favor, saying that it was exactly the independence of the funding scheme which made it unconstitutional. According to the Fifth Circuit Court of Appeals, The mechanism violates the U.S. Constitution's Appropriations Clause, which states no money shall be drawn from the Treasury, but in consequence of appropriations made by law. The clause ensures Congress's exclusive power over the federal purse, which is needed to ensure that other branches of government don't exceed their authority. Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it. Now, as any government agency would, the Consumer Financial Protection Bureau appealed this decision all the way up to the U.S. Supreme Court, who, surprisingly, given the conservative makeup of the court, ruled in their favor of keeping the funding arrangement in place. In a split 7-2 decision, with only Justices Sam Alito and Neil Gorsuch dissenting, the U.S. Supreme Court ruled that this funding scheme was, indeed, constitutional. In the majority opinion that was written by Justice Clarence Thomas, this is what's written. Quote, Although most federal agencies receive funding from Congress on an annual basis, lawmakers authorize the CFPB to draw from the Federal Reserve System the amount the agency's director deems reasonably necessary to carry out the agency's mission, subject only to an inflation-adjusted cap. In this case, we must decide the narrow question whether this funding mechanism complies with the Appropriations Clause. We hold that it does. Under the clause, an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes. The statute that provides for the funding mechanism meets these requirements, although there may be other constitutional checks on Congress's authority to create and fund an administrative agency, specifying the source and purpose is all the control the Appropriations Clause requires. And as such, this ruling allowed the CFPB to continue getting its funding, not from the Treasury, but from the Federal Reserve Banking System. And while the agency itself was obviously satisfied with this decision, the two Justices who dissented were not pleased. Justice Sam Alito, in fact, outlined in his dissent how this decision is just one more step towards a government that is not accountable to the people, given the fact that agencies can now draw their funding from sources outside of the U.S. Treasury. Here is part of what Justice Sam Alito wrote in his dissent. The court majority turns the clause into a minor vestige, allowing the powerful CFPB to bankroll its own agenda without any congressional control or oversight. The majority finds there is apparently nothing wrong with a law that empowers the executive to draw as much money as it wants from any identified source for any permissible purpose until the end of time, which is not what the clause was understood to mean when it was adopted. In England, Parliament had won the power over the purse only after centuries of struggle with the Crown. Steeped in English constitutional history, the framers placed the Appropriations Clause in the Constitution to protect this hard-won legislative power. The clause mandates legislative control over the source and disposition of the money used to finance government operations and projects. However, regardless of this opinion from Justice Sam Alito, it was of course the minority opinion, and as such, government agencies will now be able to draw their funding from third-party sources outside of the U.S. Treasury. And actually, I'd love to know your thoughts, because at least for me, what's most interesting in this whole case is that underlying all the legal arguments is the idea that if an agency gets its funding from Congress, it's then inherently accountable to Congress, and that if the agency doesn't get its funding from Congress, then that agency is quote-unquote independent. But if you think through that argument logically, doesn't it still hold that the agency is still accountable to whoever gives it its money? And so, if the money happens to come from the Federal Reserve Bank, wouldn't that agency be accountable to the shareholders of the Federal Reserve? I'd love to know your thoughts, please leave them in the comments section below, I'll be reading through them later tonight, as well as well into the week. 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