CFPB and the Courts

Eakinomics: CFPB and the Courts

Maybe CFPB should be short for Constantly Failing to Pass the Bar (it actually stands for Consumer Financial Protection Bureau). A few days ago, the U.S. Court of Appeals for the Fifth Circuit ruled that the CFPB funding structure was unconstitutional. In an attempt to insulate the CFPB from Congress, the Dodd-Frank Act authorized the CFPB to request funding from the Federal Reserve (with a limit set at 12 percent of the Fed’s total operating expenses). The whole idea was to avoid the annual appropriations process, which would likely deliver a smaller budget and “policy riders” that would limit the scope of the CFPB’s activities. And look how well that turned out.

Now, there is something about the CFPB that puts wordsmithing on steroids. A few weeks back, a group of senators wrote to CFPB Director Rohit Chopra, “We are deeply concerned that under your leadership, the Consumer Financial Protection Bureau has returned to its Obama-era roots as a lawless and unaccountable agency” (Emphasis added). In overturning the funding structure, one of the Fifth Circuit judges saw the senators and raised them, saying, “An expansive executive agency insulated (no, double-insulated) from Congress’s purse strings, expressly exempt from budgetary review, and headed by a single Director removable at the President’s pleasure is the epitome of the unification of the purse and the sword in the executive—an abomination the Framers warned ‘would destroy that division of powers on which political liberty is founded.’” (See, the senators should have said lawless and unaccountable abomination!)

Astonishingly, this is not even the first time a senior court has found the CFPB unconstitutional. Dodd-Frank also created a second feature to insulate the CFPB: The powers of the CFPB were concentrated in a single director who did not serve at the pleasure of the president and, instead, could only be removed for cause. The Supreme Court invalidated this structure a few years ago; the single-director leader of the CFPB remains in place, however.

That the Supreme Court could rule part of the CFPB unconstitutional two years ago and for nothing to have changed shows us how this will play out. From this juncture there will be an indeterminate amount of time spent in stays, appeals, and further judicial machinations. The CFPB may even end up at the Supreme Court again. But from a real-world perspective, the jig is up. Everybody knows that the CFPB cannot continue in its current form and needs a legislative do-over. The only question is when Congress will act, and sooner would be better.