On December 15, the U.S. District Court for the Northern District of California received an amicus brief from current and former members of Congress supporting a motion for summary judgment in a case concerning the funding of the CFPB. The amici had direct involvement with the introduction of the Dodd-Frank Act or served on committees with jurisdiction over the federal financial regulatory agencies. The brief argued the CFPB was intentionally structured to have a continuous and stable funding stream to avoid the regulatory failures that contributed to the 2008 financial crisis.

As previously covered by InfoBytes, a coalition of nonprofit organizations filed a complaint against the CFPB and Acting Director Russell Vought alleging that, among other things, the CFPB’s refusal to request funds from the Fed violates the APA and is intended to shutter the Bureau by “starving” it of funding. Acting Director Vought’s recent interpretation of the Dodd-Frank Act’s funding provision was at the center of the dispute. Vought asserted that the CFPB could only be funded from the Fed’s “combined earnings” when total revenue exceeded interest expenses — an “about-face” from the Bureau’s longstanding view that all “revenue” generated by the Fed qualified. The plaintiffs asserted that DOJ’s “combined earnings” interpretation is inconsistent with the CFPB’s past practice and the statutory purpose of providing non-appropriated funding.

The amicus brief highlighted that Congress had identified inadequate funding as a key factor in past regulatory shortcomings. In response, the brief contended, Congress designed the CFPB’s funding mechanism to operate automatically through transfers from the Fed’s combined earnings, rather than subjecting the agency to fluctuating appropriations and political pressure. The amici stressed that the assurance of independent funding is essential for any financial regulator to effectively protect consumers and oversee financial institutions — as confirmed by the U.S. Supreme Court (covered here).

The amici also argued that Vought’s restrictive reading directly contravenes Congress’s intent in its enabling statute and would subject the CFPB to unpredictable funding interruptions, thus undermining its ability to fulfill its statutory responsibilities. The Supreme Court had recognized previously that the Bureau covers regulatory gaps where no agency has either the authority to regulate or could assume the responsibilities, noting other agencies “do not have the staff or appropriations to absorb the CFPB’s 1,500-employee, 500-million-dollar operations.”