CFPB Constitutional, per Court (Feb. 2)

Update 247: CFPB Constitutional, per Court;

Dissent More Hysterical than Historical 

This Wednesday, the U.S. Circuit Court of Appeals for the District of Columbia voted 7-3 to uphold the constitutionality of the Consumer Financial Protection Agency (CFPB)’s governance structure.

The Dodd-Frank Act gave CFPB have a single, independent Director not subject to removal except for cause and the court majority approved that this week. What do this ruling, its appeal, and other pending court cases mean for the CFPB?

Following the Update is an appeal for candidates for an admin/policy position open at 20/20 Vision.

Good weekends, all.






For the Dissent

The CFPB’s Directorship and funding structure has been a target for banking interests and Republicans in Congress.  For some, the CFPB’s single directorship and the limits on the President’s ability to remove this director without evidence of “inefficiency, neglect of duty, or malfeasance” is unconstitutional.  The petitioners argued that, while this single directorship was intended to insulate the bureau from political influence, in reality it gives the Director undue power, undermining the President’s Article II powers and violating the Constitution on separation of powers grounds.

So said Judge Brett Kavanaugh (who issued a dissent here) in the District Court’s October 2016 opinion that “because the Director alone heads the agency without Presidential supervision, and in light of the CFPB’s broad authority over the U.S. economy, the Director enjoys significantly more unilateral power than any single member of any other independent agency.


Was This Lawsuit Just Ideological?

The opinions on Wednesday’s en banc Appeals Court ruling revealed the sharp ideological underpinnings of the argument against CFPB’s directorship structure.  Citing historical precedent, the majority opinion found that “the CFPB is neither distinctive nor novel in any respect that call into constitutionality into question.”

All three dissenting judges, however, argued that the CFPB’s single-director structure and self-contained funding mechanism violates the Constitution.  Judges Kavanagh and Henderson took especially strident tones.  Kavanaugh echoed the sentiment of his 2016 opinion, arguing that ”we should invalidate and sever the for-cause removal provision and hold that the Director of the CFPB may be supervised, directed, and removed at will by the President.”

Otherwise, he contended, the Bureau would amount to a “fourth branch of government” that would pose a threat to individual liberty and threaten tyranny. Henderson took the argument a step further and called for the CFPB to be disbanded entirely on the grounds that “consent of the governed is a sham if an administrative agency, by design, does not meaningfully answer for its policies to either of the elected branches.”

These arguments are clearly disproportionate and ideologically motivated.  The CFPB’s size and impact hardly amounts to the threat suggested by hysterical concerns about “tyranny,” a word that appears in the second sentence of Kavanaugh dissent.  Budget outlays for all federal regulatory bodies in 2016 were over $63 billion.  That same year, the CFPB’s operating budget maxed out at $631.7 million.  This case was brought without any real interest in the question of directorship; it was an ideological broadside, an especially if not shamefully cynical and legally frivolous one at that.


Theory With Other Agencies

The majority opinion addresses one of the more important aspects of this debate: the constitutionality of independent agencies.  The opinion charges that the PHH argument would amount to a  “wholesale attack on independent agencies — whether collectively or individually led — that, if accepted, would broadly transform modern government.”

Revealing an ideological aversion to regulatory institutions, the dissenters insist that the agency lacks the consent of the governed, even though Congress still has veto power over the nominee for CFPB and the President holds authority over the Director.  If the dissents were the authority, the courts would reverse the 80-year precedent in Humphrey’s Executor v. United States, where the Supreme Court upheld the authority of Congress to create a regulatory bureau with an independent Director.

The independent Director structure is not unique among agencies. The CFPB’s independent funding mechanism and single directorship was modeled after the OCC (although direct removal at the OCC is somewhat different).  The FHFA and SSA operate with the same single-director structure and removal restrictions.

If the claim that the CFPB operates outside of checks and balances were to prevail, it would amount for a fundamental upheaval to the federal regulatory structure and would change the entire power structure that has been held up by Congress and the Courts for years.  The President would have the authority to remove agency heads at will, subjecting independent agencies to the political whims of the executive.


What Are The Merits?

Setting aside the ideological entrenchments, this case was also argued and ruled on for its merits. As anyone familiar with the “efficiency” of congress or the bureaucracy of a board of directors can attest, the more decision makers whose consent is needed to take action the less action will be taken. This applies to agencies in that, with a board of governors or directors the agency will simply move slower in its regulatory outreach. This is both ideologically aligned with small government conservatives, and can be inferred from the constitution.

Our U.S government was designed with many checkpoints and counterbalances on any branch or agency’s authority in order to slow the pace of government as well as check individual power.

But the founding fathers did choose to set the executive branch apart in one respect.

The President was given swift and agile authority to enforce the laws passed by congress. There are checks along the way, but the President and the agencies he creates are constitutionally designed to be able to move quickly and independently of congressional consent in day to day operations.


What Comes Next? 

It is unclear whether the Supreme Court will take up an appeal of this decision.  The Court of Appeals revoked the penalties issued against the petitioner,  PHH, so the company will likely no longer have standing and the Trump administration may not want to challenge the ruling.

House Financial Services Committee Chair Jeb Hensarling expressed hope that the Supreme Court would review the ruling.  OMB Director Mick Mulvaney and Trump’s forthcoming CFPB director nominee, are still permitted to unwind the agency from within.  This was just the first of three rulings on independent agencies.

Watch for an upcoming case (English v Trump) that might strip Mulvaney of his OMB Directorship accelerating the timetable for replacing director Cordray on a permanent basis.

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