The Fifth Circuit has vacated a major regulation promulgated by the Consumer Financial Protection Bureau (CFPB), the Payday Lending Rule, which is a major victory for people who might find themselves short of cash for some reason. Perhaps more important, however, is that the court did so because it found that the way the CFPB is funded is unconstitutional. This is a victory for checks and balances and a defeat for the administrative state.
The Bureau is one of the most powerful federal regulatory agencies in the country because it has near-unchecked authority to regulate financial institutions’ dealings with their customers and extensive enforcement powers. Its authority is unchecked because its budget is not subject to Congress’ power of the purse. That is what the court found unconstitutional.
An agency director unconstrained by Congress will naturally feel empowered to go beyond the powers delegated to him by Congress. That is probably why, for instance, current Bureau Director Rohit Chopra has launched a series of investigations about racial discrimination in lending simply by changing a policy manual rather than going through formal rulemaking. This action is already being challenged in court by a variety of trade groups.
The CFPB is an odd beast. It was created in the Dodd-Frank Act of 2010 after the financial crisis as a new kind of regulatory agency. Its head is appointed by the president, but it is theoretically a Bureau of the Federal Reserve. Originally, the president had no real power to fire the CFPB’s director, but the Supreme Court struck down that different unconstitutional arrangement in the 2020 case Selia Law and clarified that the president may in fact remove the director.
Because of this odd structure, the CFPB gets its budget not from congressional appropriations but from the Federal Reserve. But then the Fed’s governors have no say over whether the budget is appropriate or not. The CFPB director simply writes to the Fed chairman requesting an amount and, subject to a few limitations, the chairman must provide it.
Compare that to the budget process for most other agencies, over which Congress has complete discretion. That is because Article 1, Section 9, Clause 7 of the Constitution says, “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”
The first clause says that any money spent by the executive has to be subject to a legal process in Congress, and the second clause requires a budget. As Justice Joseph Story noted in his 1833 “Commentaries on the Constitution of the United States,” “The power to control and direct the appropriations constitutes a most useful and salutary check upon profusion and extravagance, as well as upon corrupt influence and public speculation.”
So, it is significant that the Bureau has been exempted from this process. There is no check on the director’s budget decisions, beyond the oversight of the president. Yet the Constitution does not vest that responsibility in the president but in Congress.
In the face of an over-mighty executive and excessive rulemaking by agencies, the first power that Congress has to rein them in is its power of the purse — to reduce their budget, forcing them to make choices over which actions to prioritize. During the 1980s, for instance, a series of budget cuts reduced the power of the Federal Trade Commission and other agencies over Americans’ lives.
Giving the CFPB director the power to request money from outside the Treasury and the appropriations process represents an end-run around the Constitution that removes the people’s elected representatives from the process and undermines their power of oversight.
This was seen most obviously during a congressional oversight hearing in 2015, when former CFPB Director Richard Cordray responded to Rep. Ann Wagner, R-Mo., when she asked why he had spent $215 million on palatial new offices, “Why does that matter to you?” Profusion and extravagance, indeed.
Congress needs to fix the mistakes of Dodd-Frank. The Supreme Court began that by making sure its director could be fired by the president. The Fifth Circuit has now put the ball in Congress’ court; it needs to quickly and decisively bring the agency under the congressional budget process.
The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.
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If the Representatives of the People created the CFPB agency, then they also have the authority and the responsibility to regulate the agency, and to dismiss the Director if necessary, and also to confirm whom ever the President appoints.
Actually, Congress doesn’t have the authority to vest the power to legislate in any other body. They can create executive agencies with the power to enforce specific areas of Federal law. They can even empower such agencies to RECOMMEND regulations for approval by Congress. Any regulation enacted by any executive agency is in violation of the Constitution, even if it would be Constitutional if enacted by Congress.
Scrap CFPB then OK
I’m hopeful the Red Tsunami will wash away a number of useless and anti-American agencies by the new congress by pulling their funding. Funding is the responsibility and duty of the House.
Both Barney Frank and Christopher Dodd were democrats. These two people, a congressman and a senator caused the 2009 financial crisis by deliberately ignoring the way mortgages were being given. Nancy Pelosi was also in the group protecting liar loans. All three should have gone to prison.
I don’t think Nancy is done working on her rap sheet yet. The other two are long gone, might even be dead for all I know or care. But Nancy is busy as ever distorting the law and the Constitution while ignoring the moron in chief’s major transgressions as Emperor. By the way, an Emperor is not the way America was meant to be governed, just in case you didn’t recognize that Biden is indeed trying to rule America as an emperor over 80 million or so citizen objections, and Nancy is allowing it to continue.
Dodd-Frank – another Leftist disaster. Do away with this agency which has no Constitutional authority.
Congress should definitely be the overall body in approving budget considerations and the CFPB Director is way out of line in budget process!
We need to hope we get a change of parties come November. The new congress needs to start closing down these useless little empires that have been created, but serve no useful purpose the the American citizen.
Another dark principality created and appointed by Dark Powers to rule over us all. Dark powers like Barry?