The Supreme Court could trigger a second Great Depression in CFPB v. Community Financial Services Association

The plaintiffs’ arguments in Consumer Financial Protection Bureau v. Community Financial Services Association, which the justices will hear on October 3, are simultaneously some of the silliest and some of the most dangerous ideas ever presented to the Supreme Court of the United States.

They claim that an entire federal agency, the Consumer Financial Protection Bureau (CFPB), is unconstitutional. And they do so based on an interpretation of the Constitution that would invalidate Social Security, Medicaid, Medicare, and countless other federal programs. As the Justice Department notes in one of its briefs, the 2022 legislation funding the federal government contains more than 400 provisions that are invalid under these plaintiffs’ reading of the Constitution.

Perhaps recognizing that the justices are unlikely to declare the majority of all federal spending unconstitutional, the Community Financial plaintiffs then spend much of their brief suggesting arbitrary limits the Court could place on these plaintiffs’ already arbitrary interpretation of the Constitution. Without citing any legal authorities, for example, the Consumer Financial plaintiffs claim that Social Security might be excepted from the new legal regime so long as Congress is careful about how it pays for the Social Security Administration’s staff.

But even with these completely fabricated limits to their completely fabricated reading of the Constitution in place, the Consumer Financial plaintiffs — who are represented by former Trump Solicitor General Noel Francisco — would still do unimaginable harm to the United States of America.

As a brief filed by the banking industry explains to the justices, if the Supreme Court agrees with Francisco’s claim that the CFPB is unconstitutional, the entire US mortgage market could seize up, as banks will have no idea what rules they need to comply with in order to issue loans. Moreover, because home building, home sales, and other industries that depend on the mortgage market make up about 17 percent of the US economy, a decision invalidating the CFPB could trigger economic devastation unheard of since the Great Depression.

Which brings us to the single most outrageous fact about the Consumer Financial case: A three-judge panel of the far-right United States Court of Appeals for the Fifth Circuit agreed with the claim that the entire CFPB must be struck down.

Let’s be clear: It is very unlikely that five or more justices will sign onto this nonsense. This isn’t even the first time that a bunch of rogue judges on the Fifth Circuit handed down an opinion that threatened to trigger an economic depression. Seven Fifth Circuit judges did so in a case known as Collins v. Yellen, and, in 2021, the Supreme Court rejected those judges’ arguments in an 8-1 decision.

Nevertheless, Consumer Financial reveals just how deeply delusional thinking has penetrated into the post-Trump federal judiciary. The plaintiffs’ arguments in Consumer Financial have no basis in law, in constitutional text, in precedent, or in rational thought. And they risk the sort of economic catastrophe that the United States hasn’t experienced for nearly a century.

And yet a federal appeals court bought these arguments. So now it’s up to the Supreme Court to save the United States from calamity.

So, what, exactly, are the Consumer Financial plaintiffs’ arguments?

This case turns on a provision of the Constitution which provides that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” As the Supreme Court said in Cincinnati Soap Co. v. United States (1937), this provision “means simply that no money can be paid out of the Treasury unless it has been appropriated by an act of Congress.” That is, before the federal government spends any money, Congress must pass a law permitting it to do so.

The Consumer Financial plaintiffs claim that the CFPB is invalid because it was not properly funded by an act of Congress. But Congress did pass a law, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which funds the CFPB — and, again, the only limit that the Constitution’s Appropriations Clause places on federal spending is that it must be done pursuant to a federal law.

Significantly, as the DOJ notes in its brief, before the Fifth Circuit’s decision in this very case, “no court has ever held that an Act of Congress violated the Appropriations Clause.”

Nevertheless, the Fifth Circuit declared the agency unconstitutional. Much of the Fifth Circuit’s decision rests on the fact that, while Congress did pass a law funding the CFPB, the specific funding mechanism laid out in this law is unusual. Rather than passing a law giving CFPB a lump sum that it can use to fund its operations for a set period of time — as Congress does with some but not all federal agencies — Congress instead provided that the Federal Reserve shall transfer up to 12 percent of its “total operating expenses” to the CFPB each year, upon the CFPB’s request.

This amount is also capped. In 2022, Congress capped CFPB’s funding at $734 million (although the CFPB actually took less than it was allowed to under this cap). This $734 million figure amounts to about 0.01 percent of the total federal budget.

Again, this funding mechanism, where the CFPB’s operating budget first passes through the Federal Reserve before being allocated to the CFPB, is unusual. But laws do not magically become unconstitutional just because they are atypical. Under the Appropriations Clause, Congress may fund a federal agency however it chooses.

Francisco’s brief, meanwhile, asks the justices to impose two new limits on federal spending that are not mentioned anywhere in the Constitution.

First, Francisco argues that the CFPB is unconstitutional because Congress did not appropriate a “specific sum” of money to the agency. Rather than laying out in a statute exactly how much money the CFPB may spend in 2022, for example, Congress said that the CFPB may spend up to $734 million, but that the agency was also allowed to spend less money if did not believe that it needed this entire sum to fund its operations.

Merely describing this argument is enough to refute it. Nothing in the Constitution even suggests that Congress may not permit a federal agency to spend less money than the maximum amount of funds that the legislature has allocated.

If taken seriously, moreover, this argument would invalidate most federal spending, and it would make it impossible for benefit programs like Social Security and Medicare to even exist. As the Justice Department tells the Court, “Congress routinely appropriates sums ‘not to exceed’ a particular amount” and “that phrase appears more than 400 times” in the 2022 legislation funding the federal government. Francisco’s novel reading of the Constitution endangers all of these appropriations.

Under this interpretation of the Constitution, moreover, many key federal programs simply could not exist. Medicare, for example, is a health insurance program that pays for beneficiaries’ health costs as those costs arise. It is impossible for Congress to determine, in advance, the specific dollar amount that Medicare will spend in any given year. To do so, Congress would need to precisely predict which health services would be provided to every senior in the United States, and how much each one of those services would cost.

Second, Francisco argues that the CFPB’s funding structure is unconstitutional because it is “perpetual.” That is, Congress passed a law that funds the CFPB until it passes another law eliminating that funding (CFPB spending is still subject to an annual cap, and that cap rises every year with inflation).

It’s hard to know where to begin with this argument. For starters, nearly two-thirds of all federal spending is “perpetual,” with the bulk of that money going to programs like Social Security, Medicare, and Medicaid that are funded by permanent appropriations. Only about 30 percent of all federal spending is “discretionary,” meaning that it is determined every year by an annual appropriations bill.

So, under Francisco’s interpretation of the Appropriations Clause, the vast majority of federal spending is unconstitutional.

Moreover, Francisco’s argument is refuted by the Constitution’s explicit text. While the Appropriations Clause contains no language whatsoever imposing a time limit on federal appropriations, a separate provision of the Constitution provides that no law providing funding to the army “shall be for a longer Term than two Years.”

The authors of the Constitution, in other words, explicitly chose to impose a time limit on army appropriations, and to not impose such a limit on all other appropriations.

Francisco’s time limit argument also has a practical problem. Even if you agree with him that the framers secretly intended to place an expiration date on all federal spending, what, exactly, is the specific amount of time that may pass before a federal spending bill must sunset? Could Congress pass a law funding the CFPB for five years? What about for 100 years? Or 12 million years? The Constitution does not answer this question, and Francisco doesn’t answer it either.

Even Noel Francisco doesn’t appear to agree with Noel Francisco’s interpretation of the Constitution

Having laid out these two unprecedented and atextual proposed limits on federal spending, Francisco then invents a bunch of limits on his own interpretation of the Constitution — which are no less unprecedented and atextual.

At one point, for example, Francisco seems to suggest that the CFPB is especially unconstitutional because it is a “law enforcement” agency — the CFPB does not just write rules governing lending, it also brings court cases and other actions enforcing various federal laws. Francisco’s implication appears to be that, if the justices don’t want to create the kind of mass chaos that would result if Social Security and Medicare were invalidated, they could still rule in favor of his client by restricting their decision to federal agencies that do law enforcement.

Elsewhere in his brief, Francisco draws a distinction between laws appropriating money for “certain spending programs” and laws that fund a federal agency’s “operating budget.” Under this distinction, Congress could still provide for perpetual funding for Social Security benefits, so long as it does not permanently fund the actual government employees who run the Social Security program.

These proposed limits, of course, appear nowhere in the Constitution. There is nothing whatsoever in the Appropriations Clause, or in any other provision of the nation’s founding document, which even suggests that spending on law enforcement is subject to different rules than other spending, or that federal employee salaries are treated differently than federal benefits.

In any event, the fact that Francisco proposes two novel limits on federal spending, which would fundamentally alter the United States and its government, and then immediately starts backtracking by coming up with arbitrary ways to draw fences around his proposal, should give the justices an extraordinary amount of pause.

Nothing in Francisco’s brief even resembles a legal argument. It’s just a bunch of made-up rules that, until very recently, no court had ever taken seriously.

So, where on earth do these awful arguments even come from?

The Fifth Circuit’s opinion in Consumer Financial mostly paraphrases Judge Edith Jones’s concurring opinion, in a case called CFPB v. All American Check Cashing (2022), which argues that “for Congress’s power of the purse to meaningfully restrain the executive, appropriations to the executive must be temporally bound.” Francisco’s brief also relies heavily on Jones’s All American opinion.

Jones, who President Ronald Reagan appointed to the Fifth Circuit while she was still a thirtysomething former general counsel to the Texas Republican Party, is known for her harsh and often cruel interpretations of federal law. Among other things, she once ruled that a man could be executed after his court-appointed lawyer fell asleep as many as 10 times during his trial for murder. Jones’s views on sexual harassment will make your skin crawl.

Her opinion in All American shows a similar level of sensitivity and rigor. Although it is thick with irrelevant quotes from men discussing the Constitution’s Appropriations Clause — at one point, for example, she quotes James Madison’s statement that “the ‘purse is in the hands of the representatives of the people’ who ‘have the appropriation of all moneys’” — Jones does not appear to cite a single government official, at any level of the federal or any state’s government, who even expressed the idea that the Constitution limits Congress’s power to make permanent appropriations.

Indeed, Jones’s opinion barely demonstrates that any human read the Constitution in this way prior to the All American litigation. Her best evidence that some person, somewhere on the globe, actually had this idea before this lawsuit was filed is a citation to a 1988 law review article, which argues that “Congress abdicates, rather than exercises, its power of the purse if it creates permanent or other open-ended spending authority that effectively escapes periodic legislative review and limitation.”

It is far from clear, in other words, whether Edith Jones’s All American opinion would receive a passing grade if a law student submitted it as their final paper in a law school seminar on congressional appropriations, as it offers no meaningful evidence whatsoever for its central claim.

And yet Jones, Francisco, and several other Fifth Circuit judges would endanger the entire nation’s economy over a theory that has no basis in any legal text, and barely any support in all of the scholarship that has ever been produced by the American legal academy since the Constitution took effect in 1789.

Again, it is highly unlikely that five justices will sign onto this madness. But the fact that any judge would sign their name to this verkakte legal theory — and a total of seven Fifth Circuit judges joined either Jones’ All American opinion, the court’s Consumer Protection opinion, or both — raises serious questions about whether those judges are fit to serve.