Brief: The CFPB’s UnconstitutionalityDecember 28, 2016 | By: Sean Murray
The Director of the consumer agency wields so much power that his authority actually violates Article II of the United States Constitution, according to the United States Court of Appeals for the District of Columbia Circuit which presided over PHH Corp v. CFPB. “In short, when measured in terms of unilateral power, the Director of the CFPB is the single most powerful official in the entire U.S. Government, other than the President,” the Court wrote. “Indeed, within his jurisdiction, the Director of the CFPB can be considered even more powerful than the President.”
Article II of the Constitution grants the President alone the authority to take care that the laws be faithfully executed. That means that Congress can’t even legally legislate another single individual to possess that amount of power even if they wanted to. But rather than order the dismantling of the CFPB, the Court suggested two remedies, either the director be overseen by the President of the United States or the single-directorship model be reconfigured to become a multi-member commission, a workaround that other executive agencies operate under.
Even though the agency is tasked to protect consumers, the Court recognized the potential for corruption when overseen by a single unaccountable person. “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.
Meanwhile, the CFPB has cast the decision aside as nonsense and has refused to comply, even going as far as to directly rebut it in another case shortly thereafter. In CFPB v. Intercept Corporation, the CFPB argued that the D.C. Circuit’s decision was “wrongly decided” and “not likely to withstand further review.” They’ve also asked the D.C. Circuit to rehear the case in part because they believe the decision “purports to override Congress’s explicit determination to create ‘an independent bureau’ to exercise regulatory and law enforcement authority in a particular segment of the economy.” The Court can simply deny to rehear the case.
One wild card to consider in this debate is that President-Elect Trump has pledged to repeal the Dodd-Frank Act, the law that created the CFPB to begin with. At the very least, Trump may feel it necessary to flex the power granted to him under Article II and subvert the directorship of the agency.Last modified: December 28, 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.