In Community Financial Services Association of America v. Consumer Financial Protection Bureau, business organizations challenged a payday loan regulation issued by the CFPB. Among other points, they argued that the CFPB was structured unconstitutionally because its funding mechanism violated the appropriations clause in Article 1 of the U.S. Constitution.
The Fifth Circuit agreed, in an opinion written by Judge Cory Wilson and joined by Judges Don Willett and Kurt Engelhardt. Its holding divides from seven other federal courts that rejected this argument. The opinion—unquestionably bold and principled—leads to this question: Should “What would Hamilton do?” inform constitutional interpretation about modern-day financial regulation?
The appropriations clause says: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law. …” It has been generally understood to mean that the U.S. Treasury cannot pay out money unless appropriated by an act of Congress.
The CFPB is funded by the Federal Reserve, which is in turn funded outside the congressional appropriations process by assessments on banks. The funds allocated to the CFPB are then maintained in an account that only it may access. The plaintiffs argued that this structure violated the appropriations clause because it made the CFPB “double insulated” from congressional review.
Seven federal courts have previously rejected that argument, including the U.S. Court of Appeals for the D.C. Circuit. Summarizing generally, those opinions noted that many federal financial regulators (such as the Federal Reserve, FDIC and Comptroller of the Currency), to avoid the phenomenon of “agency capture,” are funded by assessments made outside the usual budgeting process. Because that funding is done pursuant to acts of Congress, those courts reasoned that an “Appropriation[] made by Law” had occurred and satisfied the appropriations clause.
The Fifth Circuit saw matters otherwise. Citing several drafters of the Constitution, including the ubiquitous Alexander Hamilton, the court observed that the appropriations clause “embodies the Framers’ objectives of maintaining ‘the necessary partition among the several departments,’ … and ensuring transparency and accountability between the people and their government.”
The court then concluded: “Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented [double insulated] arrangement crosses it.” The opinion acknowledged the different results reached by other courts but “respectfully disagreed” with them in light of the CFPB’s particular structure, coupled with its considerable influence on the economy.
Originalism is of course a valid interpretative technique. And the Supreme Court has endorsed a broad reach for originalist principles, relying heavily on the abortion laws of 1868 (a time when women could not vote) to overrule Roe v. Wade in its recent opinion in Dobbs v. Jackson Women’s Health Organization.
That said, the journey from “appropriations” today to “appropriations” as understood by Alexander Hamilton is a long and bumpy one.
In the late 1700s, the federal government had no administrative agencies that issued financial regulations, much less a meaningful central bank that could handle such an agency’s finances. The phenomenon of an agency’s “capture” by the businesses it regulates was unknown. And since that time, the nation’s financial markets have experienced many devastating “panics,” crashes and crises, most recently in 2008.
If Alexander Hamilton—a financially savvy advocate of a strong federal government—were brought forward in time, it is very much an open question what he would actually think about the appropriations clause in the context of modern-day financial regulation. Absent a time-traveling appearance by him, the question “What would Hamilton think?” appears largely speculative when applied to organizations and activities that did not exist during his life.
In overruling Roe, Dobbs warned about overreliance on a single “capacious term” such as “liberty,” noting that “’historians of ideas’ had cataloged more than 200 different senses in which the term had been used.” To be sure, the word “appropriation” does not fire the imagination quite like the word “liberty.” But 200 years of crisis-filled history can also produce “different senses” of a word, and those differences pose challenges for an originalist inquiry about the meaning of the word “appropriation.”
David Coale is an appellate partner at Lynn Pinker Hurst & Schwegmann.