The Corner

CFPB “Structurally Unconstitutional” – US Court of Appeals

In a rare victory for the Constitution and American political tradition, the US Court of Appeals from the DC Circuit today found that the Consumer Financial Protection Bureau was “structurally unconstitutional.” The offending structure consists of an independent agency with a single, all-powerful executive director. The Court found that structure fell between two stools – an agency with a single head needs to be accountable to the President, while an independent agency needs to have internal checks and balances by having a multi-member commission format like the SEC and others.

This judgment echoes the arguments the Competitive Enterprise Institute and its co-plaintiffs have been making in a separate court case, where my colleague Hans Bader argued, “The Consumer Financial Protection Bureau’s lack of checks and balances violates the Constitution’s separation of powers. Its director is like a czar. He is not accountable to anyone, and can’t be fired even if voters elect a president with different ideas about how to protect consumers.”

The Court has now made the director, Richard Cordray, accountable, which means that the President must direct and control the CFPB and its director. He has a lot to do to rein in this rogue agency, as the findings in the rest of the case indicate – the Bureau not only overstepped its powers, it breached due process, and ignored the statute of limitations, in its action against PHH. Whether or not this President will actually take action is, of course, a bit of a moot point.

But Congress also has a role to play. If it wants the CFPB to be independent, it needs to restructure the Bureau in accordance with the Court’s suggestion as a traditional, multi-member commission. It was always the intention of the Bureau’s proponents, including Senator Elizabeth Warren, that the Bureau be independent of political pressure.

If Congress wishes to support that goal of independence, it should pass a bill quickly to allow that to happen. In fact, there is just such a bill – Rep. Randy Neugebauer’s Financial Product Safety Commission Act, introduced last year. If Senator Warren really wants an independent CFPB, she should support it. Such a reform is also included in the Financial CHOICE Act, but that may be too bitter a pill for Dodd-Frank supporters to swallow.

Nevertheless, this is a huge victory for the Constitution and, at last, a repudiation of unaccountable executive power.

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