Last Tuesday, the U.S. Court of Appeals for the D.C. Circuit struck down the structure of the Consumer Financial Protection Bureau. Due to the court’s holding, the plan of congressional Democrats and President Obama to place consumer financial regulations into an unaccountable bureau has partially failed. This plan was realized in the Dodd-Frank Act in 2010, which created the bureau.
The D.C. Circuit held that the structure of the CFPB, which operates as an independent agency headed by one person, Director Richard Cordray, is unconstitutional. The court held that while the structure is unconstitutional, the bureau can still be saved by striking the unconstitutional parts of the statute that provide for removal of the director only for cause. In essence, the court is saying that for the bureau to be constitutional it must operate similar to a Cabinet department.
Like other independent agencies, there is a fundamental problem in that it doesn’t fit within the structure of the government as prescribed in the Constitution. Over the years the courts have let these independent agencies slide, giving us the regulatory state we have today. As noted by the court, these independent agencies are a threat to our liberty:
- Because of their massive power and the absence of presidential supervision and direction, independent agencies pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.
- Independent agencies are where some of the most egregious regulatory overreaches occur. From the National Labor Relations Board to the Federal Communications Commission, there is no shortage of examples of overreach and unaccountable actions.
In the context of the CFPB, however, the unaccountable nature of the agency goes much further as its power is vested in a single director and not in a board. In other independent agencies, control is vested in a bipartisan board. In the bureau’s context you have a single person who is not part of the executive branch and thus not subject to oversight and control by the president and the resulting political accountability, exercising executive power.
This is dangerous, as the court stated: “Because the CFPB is an independent agency headed by a single director and not by a multimember commission, the director of the CFPB possesses more unilateral authority — that is, authority to take action on one’s own, subject to no check — than any single commissioner or board member in any other independent agency in the U.S. government. Indeed, as we will explain, the director enjoys more unilateral authority than any other officer in any of the three branches of the U.S. government, other than the president.” (Emphasis added.)
That Congress would willingly give substantial power to an unaccountable person for the sake of political expediency is disgraceful, but this is what we have come to expect.
Fortunately, the court recognized that the bureau, as it’s now constructed, is unconstitutional.
To remedy the constitutional flaw, we can follow the Supreme Court’s precedents, including the Free Enterprise Fund, and simply sever the statute’s unconstitutional provision from the rest of the law. In this case, that targeted remedy would not affect the ongoing operations of the CFPB. With the offending provision severed, the president would have the power to remove the director at will — and to supervise and direct the director, something that can’t be done now.
In plain language, Cordray now has a boss instead of acting as his own. This is a good thing and will bring a small measure of accountability to the CFPB. The next president can replace him at will.
While the court’s holding is helpful, the issue is clearly not final. The CFPB will likely seek either a rehearing by the entire D.C. Circuit, or review by the U.S. Supreme Court.
Nathan Mehrens, President and Counsel
Americans for Limited Government Foundation
