Commentary

CFPB Is an Offense to the Constitution: Time to Abolish It

Iain Murray
By Iain Murray | November 28, 2017 | 10:03 AM EST

Former Director of the Consumer Financial Protection Bureau (Screenshot)

The spectacle of two people turning up at a major government bureau claiming to be its Acting Director this Monday is not just an indignity – it’s an affront to the Constitution. Back in 2010, the Democrat-controlled Congress set up the Consumer Financial Protection Bureau to operate independently of oversight. Amid a host of other problems, that arrangement has now resulted in a mid-level bureaucrat from the bureau defying the President, his legal advisers, and the CFPB’s own legal department in an attempt to assert control. Congress needs to recognize its past mistake, abolish this lawless bureau, and start over.

In a normal government agency, its head is responsible to the President. If an agency director overreaches, the President can fire him or her as a check on power. With independent agencies, the director is typically insulated from Presidential firings, but in the past that was balanced by a different sort of accountability: the presence of several commissioners, each answerable to one another. The CFPB was set up as an independent bureau with a sole director.

Moreover, the Dodd-Frank act that set up the bureau says that the President cannot fire the director except “for cause” (e.g. malfeasance), and the director has no colleagues to whom he or she is answerable either. Moreover, because the CFPB gets its funding on demand from the Federal Reserve, Congress cannot exercise the power of the purse to discipline the CFPB director by withholding funds, as is the case with other independent agencies.

In a final rebuke to such constitutional protections, Dodd-Frank says that the director can appoint a deputy director who will take over in the director’s absence, which may include the director’s resignation. That is what happened here, as departing director Richard Cordray appointed his Chief of Staff, Leandra English, as deputy director on Friday, the day after Thanksgiving. So Ms. English, a mid-level bureaucrat, is claiming to be the rightful Acting Director.

Problem is, there is also another, general statute that covers vacancies for positions appointed by the President, the Federal Vacancies Reform Act. This allows the President, in the event of a vacancy for a Senate-confirmed position, to appoint another Senate-confirmed official to act as director until he nominates a full-time replacement. The President relied on this statute to promptly appoint Office of Management and Budget head Mick Mulvaney as Acting Director on the same Friday that Cordray tried to appoint English to that post. Incredibly, Ms. English (who, needless to say, has not been confirmed by the Senate) brought a lawsuit two days later, on Sunday, to stop the President’s appointment. (Constitutional lawyer Adam White delves into the dueling legal theories at the Yale Journal of Regulation.)

Yet whoever ends up as Acting Director, the embarrassing and disruptive fiasco illustrates how Dodd-Frank’s attempt to create an all-powerful independent executive agency flouts constitutional norms. The Constitution vests the power to execute the laws and appoint high-level officials in the President, not in bureaucrats. The Constitution vests the power to allocate taxpayer money in the Congress, not the Federal Reserve.

The Constitution was specifically designed to do all this for very good reasons. A government official who lacks the checks and balances of accountability is likely to abuse power. So it proved with the CFPB.

Director Cordray, for instance, abused the due process rights of a New Jersey-based mortgage processing firm, PHH Corporation. His CFPB abruptly changed the long-standing interpretation of a rule to do with reinsuring mortgage products, applied that retrospectively to PHH (and others), and then fined the company millions of dollars for infringing a rule it did not know would be changed. The CFPB appealed the decision of its own Administrative Law Judge that PHH should be fined to none other than … Director Cordray himself! Cordray then upped the fine by many more millions.

Under Cordray, the CFPB has also engaged in attempts to get around Congressional restrictions on its power. The Dodd-Frank Act stops the CFPB from regulating auto loans, but the bureau has nonetheless attempted to exercise power over auto lenders, devising statistical models to show alleged racial discrimination in auto lending and otherwise trying to regulate various products sold as part of auto loans.

The bureau has also engaged in fishing expeditions in an attempt to expand its power. Immigration services provider Nexus Services is currently in court trying to stop the CFPB from demanding countless financial records of both it and its clients. Nexus simply does not provide any sort of credit to its clients, but the CFPB says that it cannot take the company’s word for it, so is demanding the documents.

Unfortunately, it is unlikely that even legitimate Acting Director Mulvaney would be able to fix these institutional problems. A past Congress made the mistake of granting the CFPB Director these unconstitutional powers, so the current Congress should make it a priority to set things right. The best way to do that is to start again, return consumer protection from fraud and deception to the Federal Trade Commission, and just abolish the CFPB entirely.

Iain Murray is vice president for strategy at the Competitive Enterprise Institute, a free market public policy organization based in Washington, D.C.

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