Critics of the “administrative state” had a bad day in court Tuesday as Supreme Court justices appear skeptical of arguments that the federal agency inspired by Senator Warren, the Consumer Financial Protection Bureau, has been funded in an unconstitutional way since its inception.

In a case arising from the Fifth Circuit, a payday lending group that brought the case argues that the bureau is unconstitutional because it degrades the separation of powers between the executive and legislative branches by delegating too much of Congress’s power to the executive branch.

The bureau was established in 2010 at the urging of Ms. Warren in the wake of the 2008 financial crisis as a regulatory agency tasked with enforcing financial laws and ensuring consumer financial products are transparent. The bureau, Ms. Warren says, is “dedicated to stopping scams and holding financial firms accountable when they cheat people.”

Republican critics of the agency, meanwhile, argue that it lacks accountability because it is not subject to Congressional oversight by way of the appropriation process. Republicans on the Senate Banking Committee say that the bureau is pursuing a “radical and highly-politicized agenda unbounded by statutory limits” and even “deploying inappropriate and legally dubious tactics to unfairly damage financial institutions’ reputations and customer relationships.”

In the case before the high court Tuesday, a payday lending group, the Community Financial Services Association of America, argues it was harmed by a rule that prevents payday lending companies from attempting to withdraw money from a borrower’s bank account a third time after their first two attempts fail because the borrower does not have enough money.

The rationale behind this rule, according to the bureau, is that payday lenders often attempt to withdraw funds from a borrower’s account multiple times on the same day and successive attempts can accumulate large amounts of fees that the borrower will have to pay.

The payday lending group alleges that the bureau could not have written that rule without what they say is an unconstitutional funding mechanism.

At the Fifth Circuit, the riders ruled that the reason the bureau theoretically creates issues around the separation of powers is because it derives its funding from the nation’s central bank, the Federal Reserve System, rather than annual appropriations bills.

“While the great majority of executive agencies rely on annual appropriations for funding, the Bureau does not,” the Fifth Circuit wrote. “Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it.”

At the high court, however, even some of the most conservative justices appeared skeptical of arguments made by the attorney for the payday lending group, Noel Francisco, who served as solicitor general under President Trump.

Justice Clarence Thomas, for example, said in reference to Mr. Francisco’s claim that the bureau’s funding structure was unique, “I get your point that this is different, that it’s unique, that it’s odd, that they’ve never gone this far,” but “not having gone this far is not a constitutional problem.”

In another aside, Justice Brett Kavanaugh appeared to dismiss an argument presented by Mr. Francisco that Congress has funded the agency in perpetuity, saying that “Congress could change it tomorrow.”

Justice Amy Coney Barrett, was also skeptical of Mr. Francisco’s argument that funding for the bureau was unconstitutional because it is not specific enough in what it allocates to fund the agency.

“There’s nothing in the appropriations clause itself that imposes the limits you are talking about,” Justice Barrett said to Mr. Francisco. 

The Court’s liberal justices, like Justice Elena Kagan, were even more skeptical of the arguments presented by the opponents of the bureau, with Justice Kagan telling Mr. Francisco that his arguments were “flying in the face of 250 years of history.”

Proponents of the bureau point to the agency’s work in curbing predatory lending by implementing and enforcing financial laws. Conservative critics, however, argue that the agency violates federal laws governing administrative agencies.

As the litigation over the bureau moved through the federal courts, some observers warned that if the Supreme Court agreed with critics of the agency’s funding structure, it could cast doubt on the legitimacy of other regulatory agencies including the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Social Security Administration, and even the Federal Reserve.

Such concerns, which aired in publications including Politico and the New York Times, appeared to ebb following the arguments at the high court on Tuesday.