Law & the Courts

CFPB Case Threatens the Power of a President to Shape His Administration’s Policies

OMB director Mick Mulvaney speaks to reporters at the CFPB, November 2017. (Reuters photo: Joshua Roberts)
An appeals court would let Congress create powerful executive-branch agencies that are independent of the president.

The federal appeals-court decision last week in PHH v. CFPB should be of concern to all Americans. Very simply, by permitting Congress to create an executive-branch agency that is independent the president, the court’s ruling authorizes Congress to put vast areas of the United States government outside the control of the president.

The U.S. Constitution created a government of separated powers — a Congress to make the laws, a president to execute or enforce the laws, and a judiciary to interpret the laws — and each of the parts was intended by the Framers to be independent of the others and to carry out its responsibilities within its assigned jurisdiction. In this structure, the president has only the authorities given to him in laws passed by Congress, and Congress can specify by law how the executive agency will be structured — whether, for example, it is headed by a single director or by a bipartisan commission.

For most of our history, Congress and the president have respected one another’s turf. Presidents and agencies of the executive branch, for the most part, have operated only with the authorities granted to them by Congress, and the Congress did not seek to hobble the presidency by limiting the president’s control over the agencies of the executive branch. The Environmental Protection Agency is a good example of this structure — a major agency headed by a single director who serves at the pleasure of the president but acts with legal authority provided by Congress.

To be sure, Congress has sometimes created multi-headed and bipartisan bodies to handle discrete and largely technical issues — the SEC and the FCC are examples — where the president could appoint the chairman and a majority of the members of the commission but had no power to dismiss members who did not follow his policies. The independence of these agencies was not a serious constitutional problem, though, both because the president usually does not have a distinct policy in the technical areas they handle, and because the agencies’ decisions did not affect broad areas of the economy.

This arrangement worked well for over 200 years until 2008, when, in the Dodd-Frank Act, Congress established the Consumer Financial Protection Bureau (CFPB). The agency was to be headed by a single director, who would have the authority to regulate all financial relationships between consumers and financial institutions. Most important, the director would have a fixed five year term, and could be removed from office by the president only for malfeasance.

Given the importance of consumer activity in the U.S. economy, this was a major — even historic — break with the past.

In the scope of its responsibilities, the CFPB is the equivalent of the EPA, with the same power to operate nationally and to make decisions that determine whether and how the economy will grow. However, because the director of the CFPB — unlike the director of the EPA — cannot be changed by the president, this powerful agency is insulated from the results of the electoral process that puts a president in office.

The gravamen of the court’s decision is that Congress has the power under the Constitution to decide that the director of the CFPB could be “independent” of the president. Although this could be seen as a breach of the Constitution’s separation of powers, it is far more important for its effects on the ability of the American people, through their votes, to change the policies of the government.

Once again, we have to rely on the Supreme Court to rescue the Framers’ Constitution.

For example, if the bitter partisanship of the present day continues, there is nothing under the court’s decision that would prevent a future Congress from deciding that the attorney general or the FBI director — to choose only two major officials who have recently been in the news — shall have a fixed term of office and not be removable by the President except for malfeasance. Many commentators, even today, are suggesting that the attorney general needs to be independent of the president by more than simply tradition.

To require this by law would be a gross policy error; a future president could find his hands tied on important matters that the voters have wanted to change because key officers of his administration were holdovers from a previous president. Yet, there is nothing in the recent court decision that prevents this result, and the Democratic Congress that adopted the Dodd-Frank Act saw nothing unusual in putting a major agency of the government outside the democratic process.

Once again, we have to rely on the Supreme Court to rescue the Framers’ Constitution from people who have no understanding of how it was supposed to work and why it has endured for so long.

READ MORE:

The Tragic Downfall of the Consumer Financial Protection Bureau

Don’t Believe the Left’s CFPB Narrative

Richard Cordray and the CFPB

Peter J. Wallison — Peter J. Wallison is a senior fellow at the American Enterprise Institute. He was general counsel of the Treasury and White House counsel in the Reagan administration.

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