Second Circuit weighs in on CFPB funding structure

By

Chris Nelson

The Checks and Balances Letter delivers news and information from Ballotpedia’s Administrative State Project, including pivotal actions at the federal and state levels related to the separation of powers, due process, and the rule of law.

This edition: 

In this month’s edition of Checks and Balances, we review legal challenges to the funding structure of the Consumer Financial Protection Bureau (CFPB); President Biden’s veto of a Congressional Review Act (CRA) resolution aiming to nullify the Environmental Protection Agency’s (EPA) revised Waters of the United States rule; and President Biden’s recent executive order raising the monetary threshold for significant rules, among other provisions.

At the state level, we take a look at a lawsuit aiming to block Minnesota’s new vehicle emissions regulation and clarification from the Oklahoma Attorney General on the state board of education’s rulemaking authority.

We also highlight a new study from administrative law scholars Steven J. Balla, Bridget C. E. Dooling, and Daniel R. Pérez examining partisan use of the Congressional Review Act (CRA). We wrap up with our Regulatory Tally, which features information about the 193 proposed rules and 195 final rules added to the Federal Register in March and OIRA’s regulatory review activity.

In Washington

Second Circuit weighs in on CFPB funding structure

What’s the story?

The U.S. Court of Appeals for the Second Circuit ruled in Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, P.C. on March 23, 2023, that the funding structure of the Consumer Financial Protection Bureau (CFPB) is constitutional and does not violate the Constitution’s appropriations clause. The ruling departs from a 2022 holding by the Fifth Circuit that is pending before the U.S. Supreme Court.

After the U.S. District Court for the Southern District of New York ruled in August 2020 in favor of the CFPB’s civil investigative demand against the Law Offices of Crystal Moroney, the law office appealed on the grounds that the agency’s petition was unenforceable in part because the CFPB’s funding structure (which flows through executive branch disbursements from the U.S. Treasury rather than through congressional appropriations) violates the appropriations clause of the U.S. Constitution. The Second Circuit, however, upheld the agency’s funding structure, arguing that Congress approved of the funding mechanism when it passed the Consumer Financial Protection Act.

The U.S. Court of Appeals for the Fifth Circuit, however, ruled in 2022 in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited that the CFPB’s funding structure violates the appropriations clause, which vests Congress—not the executive branch—with control over fiscal matters. CFPB appealed the decision and the case is scheduled to be heard by SCOTUS during the court’s October 2023-2024 term. The upcoming SCOTUS decision could overturn the Second Circuit ruling. 

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Biden vetoes CRA resolution aiming to nullify EPA rule

What’s the story?

President Joe Biden (D) issued a veto on April 6, 2023, to block a Congressional Review Act (CRA) resolution aiming to nullify the Environmental Protection Agency’s (EPA) revised Waters of the United States rule, which largely restores the Obama-era regulatory framework under the Clean Water Act. Biden stated in his message, “The increased uncertainty caused by H.J. Res. 27 would threaten economic growth, including for agriculture, local economies, and downstream communities.” As a result of the veto, the rule remains in effect. 

Federal lawmakers in the 118th Congress have filed CRA resolutions aimed at nullifying certain administrative rules issued under the Biden administration and preventing agencies from issuing similar rules in the future. The selection of pending CRA resolutions below addresses rules on topics ranging from student loans to environmental regulations: 

  • Student loan cancellation: U.S. Senator Bill Cassidy (R-La.) introduced a CRA resolution on March 27, 2023, aiming to nullify a rule from the U.S. Department of Education regarding student loan cancellation. “The Biden administration’s tuition bailout is bad public policy, and it’s unfair to people who’ve paid their college debt off by working multiple jobs or consciously meeting their obligations,” argued Senator John Cornyn (R-Texas) in a statement.
  • Regulatory definition of ‘habitat’ for endangered species: Senator Cynthia Lummis (R-Wyo.), joined by Republican cosponsors, introduced a CRA resolution on March 30, 2023, aiming to nullify a rule from the National Marine Fisheries Service and maintain the regulatory definition of ‘habitat.’ Lummis argued in a statement, “By scrapping the definition of habitat within the ESA, the Biden administration is causing chaos and confusion among private property owners throughout Wyoming and the west. … This CRA will ensure that Wyoming landowners are not unfairly targeted by the administration and that habitat designations are based on science, not on politics.”
  • Endangered species listing of northern long-eared bat: Representative Pete Stauber (R-Minn.) and Senator Markwayne Mullin (R-Okla.) filed separate CRA resolutions on March 30, 2023, joined by Republican cosponsors, aiming to nullify a rule from the Fish and Wildlife Service that reclassifies the northern long-eared bat as an endangered species under the Endangered Species Act (ESA) of 1973. “The listing of the northern long-eared bat is an example of the ESA being used to stifle development rather than its intended purpose, which is to protect species from human-caused harm,” argued Stauber in a statement.  

The CRA as of April 2023 has been used to repeal 20 administrative agency rules, including one rule repealed under President George W. Bush (R), 16 rules repealed under President Donald Trump (R), and three rules repealed under President Joe Biden (D).

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Biden raises monetary threshold for significant rules

What’s the story?

President Joe Biden (D) issued an executive order on April 6, 2023, to make changes to the regulatory review process. The order raises the monetary threshold for classifying significant rules and seeks to reduce the number of actions that require review by the Office of Information and Regulatory Affairs (OIRA).

The executive order changes the definition of a significant regulatory action to include any action with an annual effect of $200 million or more, as opposed to $100 million or more. It also directs the OIRA administrator to review all other significant rules (those regarding novel policy issues) and seeks to classify agency rules in an effort to limit the number of actions that require review by OIRA. The order also directs the Office of Management and Budget (OMB) to update regulatory analysis guidance Circular A-4 within one year, among other provisions. 

OIRA Administrator Richard Revesz stated in a blog post that “these new steps will produce a more efficient, effective regulatory review process that will help improve peoples’ lives.” 

Former OIRA Administrator Susan Dudley, however, argued in Forbes “that amendments to key definitions may seriously curtail the number of rules subject to the analysis and interagency review practices that have been the bedrock of regulatory development in the United States for the last half-century.”

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In the states

Minnesota associations sue state agency to block vehicle emissions rule

What’s the story? 

A group of Minnesota business associations filed a lawsuit against the Minnesota Pollution Control Agency (MPCA) on March 13, 2023, in the U.S. District Court for the District of Minnesota against the adoption of a zero-emissions vehicle regulation modeled on similar regulatory action in California. 

The fuel emissions mandate was issued in California, effective November 30, 2022, in an effort to scale down emissions from light-duty passenger cars, pickup trucks, and SUVs by 2035. The California regulation was later adopted by the Minnesota Pollution Control Agency on July 26, 2021. Minnesota was among a group of 17 states considering adopting California’s mandate. 

The Clean Fuels Development Coalition, Minnesota Soybean Growers Association, ICM Inc., Minnesota Service Station and Convenience Store Association, and National Association of Convenience Stores argued that the mandate violates the Energy Policy and Conservation Act (EPCA), which prohibits states from adopting fuel efficiency standards that contradict the federal standard. The president and CEO of the National Association of Convenience Stores, Henry Armour, argued, “Adopting California’s rules in Minnesota would stop further investments in efficient use of renewables and other liquid fuels and would result in more net carbon emissions than we would have without these misguided rules,” according to CSP.  

A spokesperson for MPCA, Andrea Cournoyer, stated, “While the Minnesota Pollution Control Agency reviews this latest legal action, we are confident these standards will continue to stand and remain focused on implementing the standards, building out Minnesota’s electric vehicle infrastructure and advancing Minnesota’s Climate Action Framework,” according to StarTribune. 

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Dispute over Oklahoma State Board of Education’s rulemaking authority

What’s the story? 

Oklahoma Attorney General Gentner Drummond (R) ruled on April 4, 2023, that the State Board of Education (BOE) does not have the authority to issue administrative rules without the directive of the state legislature. The attorney general’s ruling follows efforts by the Oklahoma BOE to mandate restrictions on school libraries and sexual education. 

The Oklahoma BOE voted on March 23, 2023, to enact regulations regarding library materials and sexual education. The rule required schools to remove library materials that fell into the category of what the agency referred to as “pornographic material and sexualized content.” Another rule was passed in an effort to allow parents to review and object to instructional materials concerning sexual education. 

Drummond’s ruling stated, “Any rule promulgated relying only on the general ‘powers and duties’ within section 3-104 is invalid and may not be enforced by the State Department of Education or the Board.” The ruling argues that any proposed rules that exceed the BOE’s statutory authority are void.   

State Superintendent Ryan Walters (R) responded to the ruling on April 6, 2023, stating that “because the Attorney General’s approach is consistent with the proposed Board rules, I respectfully commend the rules for consideration and adoption by the Legislature.”

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Examining partisan use of the CRA

A new study from administrative law scholars Steven J. Balla, Bridget C. E. Dooling, and Daniel R. Pérez aims to examine historical use of the Congressional Review Act (CRA) in an effort to clarify what the authors view as assumptions about its partisan applications by Republicans. In “Beyond Republicans and the Disapproval of Regulations,” Balla, Dooling, and Pérez conclude that the CRA has been used regularly since its passage as a “position taking” mechanism by both Republicans and Democrats alike:

“Under the Congressional Review Act (CRA), legislators deploy expedited procedures to repeal agency regulations. For decades, the conventional wisdom—drawn from a handful of cases in which rules were repealed—has been that the CRA is primarily used by Republicans to nullify regulations issued at the close of Democratic presidential administrations. In this article, we demonstrate that the conventional wisdom provides an incomplete account of the use of the CRA. The centerpiece of our approach is an original data set of all resolutions disapproving of agency regulations introduced over a 26-year period. The analysis of this data set demonstrates that Democrats make regular use of the CRA and that resolutions are consistently pursued outside of presidential transitions. Given these patterns, we argue (contrary to existing accounts) that the CRA is not inherently deregulatory and routinely has utility as an instrument of position taking for legislators of both political parties.”

Want to go deeper? 

  • Click here to read the full text of “Beyond Republicans and the Disapproval of Regulations” by Steven J. Balla, Bridget C. E. Dooling, and Daniel R. Pérez

Regulatory tally

Federal Register

Office of Information and Regulatory Affairs (OIRA)

OIRA’s March regulatory review activity included the following actions:

  • Review of 70 significant regulatory actions. 
  • Ten rules approved without changes; recommended changes to 55 proposed rules; four rules withdrawn from the review process; one rule subject to a statutory or judicial deadline.
  • As of April 3, 2023, OIRA’s website listed 107 regulatory actions under review.
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