Donald Trump’s recent refusal to promise he’ll accept the presidential election’s result has raised much concern. Yet, there has been little outcry over Consumer Financial Protection Bureau (CFPB) Director Richard Cordray recent dismissal of a court verdict against him.
Last week, the U.S. Court of Appeals for the D.C. Circuit ruled in the case, PHH Corp. v. CFPB, that the Bureau’s structure was unconstitutional and ordered that Cordray should report to the President. Under the Dodd-Frank Act of 2010, which created the CFPB, the President has no power to remove the CFPB Director except for malfeasance, and Congress has no power to restrict the Bureau’s operations through the appropriations process, as the Bureau draws its budget from the Federal Reserve, itself an independent agency. The Court deems the CFPB’s unaccountable structure unconstitutional, saying that it posed a “risk of arbitrary decisionmaking [sic] and abuse of power” and “a threat to individual liberty.”
Sounds momentous. But you will find no mention of the judgment on the CFPB’s website, and so far the Bureau’s only action has been to file a brief in an unrelated case saying that the ruling “has no basis in the text of the Constitution or in Supreme Court case law,” and that, “The panel decision was wrongly decided and is not likely to withstand further review.”
The Bureau’s contempt for the rule of law should come as no surprise to anyone who has followed its actions during its short history. It was in full display in the facts of the case. The Bureau had fined PHH Corporation $109 million for what it alleged were illegal “kickbacks” in its mortgage reinsurance business. The Court found that the CFPB reversed longstanding policy from the Department of Housing and Urban Development, which administered the underlying law before the Bureau’s creation in the Dodd-Frank Act of 2010. It then proceeded to apply this new interpretation of the law retroactively back to 2008, violating PHH’s due process rights, while declaring there was no statute of limitations on its powers.
The CFPB’s actions towards PHH formed a long train of abuses and usurpations. When an agency acts in an out of control manner, as the Court found the Bureau to be doing, it is incumbent on elected officials to step in to protect the people against such overreach. As explained above, they could not do so. The Court’s remedy was to make the CFPB Director directly accountable to the President. This will mean Executive Orders, which the Bureau has previously ignored as an independent agency, will start to apply to it, as House Financial Services Chairman Jeb Hensarling pointed out in a letter to Director Cordray. Its cost-benefit analyses will now need to be submitted to the Office of Management and Budget for review (although OMB rarely reviews analyses properly). And the Bureau will need to comply with President Obama’s order that regulations use the least burdensome and best available techniques.
In addition, the Bureau will have to take federalism into account when proposing rules that may prove redundant. For example, its current proposed rule on short-term lending covers an industry that is already heavily regulated at the state level. It will also have to properly consult with tribal governments, many of which are concerned that the short-term loan rule may violate their sovereignty.
Yet, the ruling has wider ramifications. We now have a wholly novel situation where an executive branch agency gets its budget not from the appropriations process, but from an independent agency with its own sources of revenue. The Bureau justifies this funding structure as promoting the “full independence” of “funding outside the congressional appropriations process.” Yet as Madison underlined in Federalist 58, Congressional control of the purse strings represents “the most complete and effectual tool” with which Congress can check “all the overgrown prerogatives of the other branches of government.” The Court’s action has increased Presidential power without a corresponding increase in Congress’ power. That issue still needs to be addressed before the CFPB can be brought into proper constitutional order. CEI’s court case against the Bureau seeks to do that on these very grounds.
Cordray likely will fight this response to his overreach tooth and nail. His agency’s arrogant and contemptuous statement about the ruling confirms this. And his contempt for Congress was on full display when he responded to Rep. Ann Wagner (R-MO) when she asked why he had authorized $215 million of expenditure on the Bureau’s palatial headquarters, “Why does that matter to you?”
Laws are supposed to protect people, not put people in jeopardy of abuse by government officials. If the rule of law is endangered in America, it is the actions of contemptuous bureaucrats like Richard Cordray that have allowed it.