National Consumers League

CFPB's structure ruled unconstitutional, but is it really?

SG_HEADSHOT.jpgThe DC Federal Circuit Court of Appeals ruled on Tuesday that the structure of the Consumer Financial Protection Bureau (CFPB), the Wall Street financial watchdog that is the brainchild of  Sen. Elizabeth Warren (D-MA), is unconstitutional.

The three judge tribunal said that the CFPB will now function under direct oversight of the President, who will have the power to fire the agency’s director at will. The decision is intended to weaken the agency’s ability to wield its regulatory power independently from this or any Administration.  

The lawmaker who authored the decision, U.S. Circuit Judge Brett Kavanaugh, is a well-known conservative who once worked on President Bill Clinton’s impeachment as a Hill staffer. Judge Kavanaugh wrote that the CFPB’s “single-director structure” violates the separation of powers specified by the Constitution by vesting one person with vast power “unchecked by the President.” Prior to the decision, the President could only fire the director for very specific reasons. Supporters of the CFPB’s work predicted this court would find a reason to fault the agency and its structure.

Judge Kavanaugh wrote: “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.” This seems like a dubious basis for undermining an agency’s power as Congress created the CFPB structure very deliberately.

It is likely the federal government will ask the full DC Circuit to reconsider its ruling. And the recent wave of Obama appointees to the court may suggest a rehearing is possible. Meanwhile, Senator Warren had this to say about the decision:

"This split decision — which bizarrely relies on a mischaracterization of my original proposal for a new consumer agency — will likely be appealed and overturned. But even if it stands, the ruling makes a small, technical tweak to Dodd-Frank and does not question the legality of any other past, present, or future actions of the CFPB. The CFPB has been, and will remain, highly accountable to both Congress and the President, and continued Republican efforts to transform the agency's structure or funding should be seen for what they are: attempts fostered by big banks to cripple an agency that has already forced them to return over $11 billion to customers who have been cheated."

The CFPB has become such an important instrument of protection for consumers by overseeing the activities of the financial service industry that of course, given its imposition of fines and cracking down on industry misdeeds, bad actors are trying at every turn to challenge its power. It’s reminiscent of the multiple legal attacks on the Fair Labor Standards Act of 1938, which stood up well.

The CFPB is doing exactly the job Congress intended, being the cop on the beat, and it’s fortunate that its structure and ability to police the industry won’t be seriously altered by this decision.