CFPB’s Power Structure Ruled Unconstitutional – Concentration of Enormous Power a Threat to Individual LibertyOctober 11, 2016 | By: Sean Murray
The enforcement agency long panned for not being accountable to anyone, including Congress, has finally been checked by the judicial branch. On Tuesday, October 11th, the United States Court of Appeals for the District of Columbia Circuit, ruled the CFPB’s structure is unconstitutional because as a single-person-run agency of the executive branch, it is not even accountable to the President of the United States. The CFPB’s existence challenges the very framework set forth by the nation’s founders, the Court asserted.
The opening of the 110-page decision cites Article II of the United States Constitution. “The executive Power shall be vested in a President of the United States of America,” adding that Article II grants the President alone the authority and responsibility to “take Care that the Laws be faithfully executed.” As time has passed however, independent executive agencies have been created and overseen by multi-member commissions, which have become an acceptable check on the individual power of one person.
In other words, to help preserve individual liberty under Article II, the heads of executive agencies are accountable to and checked by the President, and the heads of independent agencies, although not accountable to or checked by the President, are at least accountable to and checked by their fellow commissioners or board members. No head of either an executive agency or an independent agency operates unilaterally without any check on his or her authority. Therefore, no independent agency exercising substantial executive authority has ever been headed by a single person. Until now. – Excerpt from the Court of Appeals decision
As it stood previously, CFPB Director Richard Cordray essentially had unlimited power to write his own rules, attack and fine companies whether warranted or not, personally motivated or not, on whatever whim he so desired. While very unpopular among Republicans and even among some Democrats, he received recent acclaim for his agency’s work on the Wells Fargo fake account scandal. Other moves have been more dubious, like their foray into lawmaking without the legislative branch (see a 1341-page law they invented) and reinterpreting their own statutory authority by expressing an interest to regulate commercial finance, all while potentially engaging in “chokepoint-like” tactics to intimidate business models they don’t like.
The Court of Appeal’s decision is especially damning because the CFPB was caught making legal errors in their enforcement action against a mortgage lender that led to this review to begin with. In effect, in a case that questioned whether or not the agency’s mere existence is rogue in that of itself, the CFPB was actually going rogue in how they applied the law. Basically, they removed any doubt about whether or not oversight should be warranted.
The CFPB will not be dismantled as a result of the decision and it will still possess incredible enforcement power. The decision instead directs the organization to conform to an existing executive agency structure, either through a multi-member commission or be directly accountable to the President of the United States.
The WSJ reported that the CFPB had no comment and is currently reviewing the decision.
“The CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency,” the Court asserted.Last modified: October 11, 2016
Sean Murray is the founder of deBanked, an 11-year veteran of the merchant cash advance industry, a casual Lending Club and Prosper note investor, the co-founder of Daily Funder, an alternative lending speaker, consultant, writer, and enthusiast. Connect with me on LinkedIn or follow me on twitter.