As conservatives have been pointing out since the agency was merely a proposal in Congress, the Consumer Financial Protection Bureau has a constitutional problem. My AEI colleague Adam White summarized it a few months ago:
The Fifth U.S. Circuit Court of Appeals ruled in October that the bureau’s unprecedented power to fund itself is unconstitutional. The Constitution prohibits agencies from spending from the federal Treasury without “appropriations made by law.” The CFPB does exactly that. The Dodd-Frank Act authorizes its director to decide unilaterally how much the agency needs to spend and to demand that the Federal Reserve transfer the funds to the agency. As long as he doesn’t demand more than 12% of the Fed’s operating expenses, the central bank is obligated to pay up. The Fifth Circuit recognized that this self-funding power violates the Constitution and undermines one of the basic pillars of republican self-government.
In Slate, Mark Joseph Stern claims that the Fifth Circuit’s decision is part of a campaign by judicial conservatives to get rid of Medicare and Social Security. Those gigantic programs are not funded via annual congressional appropriations, either — and are therefore vulnerable to the same separation-of-powers critique that the CFPB is, right?
Wrong. As Stern himself notes, the Fifth Circuit decision “complained that mandatory appropriations violate the separation of powers by giving the executive branch too much control over the purse strings.” The executive branch, by contrast, doesn’t have vast discretion over the size of Social Security checks: Congress has directed it on how to spend, and how much to spend, via statute. There’s no equivalent to the CFPB’s drawing up its own budget.
In one of the Fifth Circuit opinions that Stern criticizes, Judge Cory Wilson draws the distinction. From footnote 16: “Neither is the Bureau’s structure comparable to mandatory spending programs such as Social Security. The Bureau self-directs how much money to draw from the Federal Reserve; the Social Security Administration (SSA) exercises no similar discretion. . . . Furthermore, Congress retains control over the SSA via the agency’s annual appropriations” (emphasis in original).
Liberals should worry a lot less about the mostly imaginary Republican threats to entitlement programs and a lot more about the programs’ all-too-real pending insolvency.