A three-judge panel of the U.S. Court of Appeals for the Second Circuit handed down a decision on March 23 holding that the funding mechanism for the federal Consumer Financial Protection Bureau is constitutionally sound. In doing so, it “respectfully decline[d] to follow the Fifth Circuit’s decision” in Cmty. Fin. Servs. Ass’n of Am., Ltd. v. CFPB. Last year, the Fifth Circuit ruled that the method used to fund the CFPB was prohibited by the U.S. Constitution’s Appropriations Clause. In CFPB v. Law Offices of Crystal Moroney, P.C., the CFPB issued a Civil Investigative Demand to a law firm seeking certain documents. When the law firm refused to hand over the documents, the CFPB filed a lawsuit in federal district court to enforce it. The district court granted the request and the law firm appealed.

On appeal, the law firm made several arguments why the CID could not be enforced, one of which relied on the Fifth Circuit’s recent ruling. The Second Circuit rejected them all and affirmed the district court’s order.

A copy of the opinion in CFPB v. Law Offs. of Crystal Moroney is available at: Link to Opinion.


The Fifth Circuit found that the means of funding the CFPB was outside the appropriations process, even though Congress had approved of the funding mechanism when it created the CFPB. As a result, the CFPB’s budget was “insulat[ed] from annual or other time limited appropriations.”

“We cannot find any support for the Fifth Circuit’s conclusion in Supreme Court precedent . . . [or] in the Constitution’s text,” the Second Circuit panel wrote. Citing a 1990 Supreme Court decision, the Second Circuit concluded that a funding scheme that is “authorized by a statute” is all that is required under the Appropriations Clause. There is no question that Congress did just that in 2010 when it crafted the CFPB’s funding scheme in section 1017 of the Dodd-Frank Act.

The Fifth Circuit’s reasoning that annual or “time limited appropriations” are a necessary element missing from the Bureau’s funding scheme fared no better. The text of the Constitution, the Second Circuit noted, only places time limitations on funds to “raise and support an army.” Since no other funding has such a limitation, by negative implication the Fifth Circuit could not impose one.


As much as this appears to be an argument over the CFPB, it is likely bigger than that. A few weeks ago I wrote that when the Supreme Court decided to take up the Fifth Circuit’s decision, it looked like the stage was set for a battle between two philosophies. To read more click here


The case began when the CFPB petitioned in federal court to compel the Law Offices of Crystal Moroney PC to produce records for an investigation of abusive debt-collection practices. The Crystal Moroney firm produced some records, according to court papers, but has refused to turn over many more, citing attorney-client and work product privileges.

The CFPB demanded the records in June 2017, “as part of a nonpublic investigation,” the petition states, to determine whether debt collectors or others are “engaging in unfair, deceptive or abusive acts or practices.”

The petition does not specifically identify the Moroney firm, or clients, as the target of an investigation.

Crystal Moroney bills itself as a “firm, fair collection solution” that “ensures that your company image and our firm’s reputation remain in a positive light throughout the process.”

The law firm provided some records in July 2017 and asked for more time to consult with a lawyer about the rules of professional responsibility in New York and New Jersey, where Ms. Moroney is licensed to practice.

The bureau agreed to limit some of its demands and to extend the deadline.

The firm produced redacted records in September 2017, according to the bureau. It also asked the government to “promptly return or destroy a significant number of previously produced materials” that it claimed should not have been disclosed under rules of professional responsibility.

The bureau says it honored the request.

But since then, the bureau claims, the firm has withheld records of telephone calls, correspondence with consumers and contracts for services with creditors.

The law firm has cited confidentiality restrictions, according to the bureau, and an inability to search for or access data.

The firm reportedly told the bureau, for instance, that it would take 22,500 hours to produce information from 500,000 telephone calls recorded over an 18-month period.

It also asked the bureau to narrow the request for records by two-and-a-half years, beginning in June 2016 instead of January 2014. The bureau declined.

Administrative agencies are given wide latitude to investigate by subpoena, the bureau argues. To read more click here.