The Obama Administration’s legacy was dealt a big, public blow yesterday when a federal court said the structure of its federal financial watchdog agency is unconstitutional. It’s another rebuke of the idea that unilateral action by one person in power should be how to govern our financial sector.
The U.S. Court of Appeals for the District of Columbia decided that the Consumer Financial Protection Bureau (CFPB), which was created as part of the sweeping 2010 Dodd-Frank financial reform law to keep an eye on Wall Street in the interest of Main Street, has a structure that just doesn’t work because it concentrates too much power in the hands of one person. The Court stopped short of shutting down the entire agency though.
Democratic Massachusetts Senator Elizabeth Warren was the architect of the CFPB and is brushing off this decision as no big deal, suggesting it will likely be appealed. Meanwhile, the agency is looking into what to do next.
Currently, the CFPB has one director who can only be removed with cause. Instead, the Court says the CFPB needs to be restructured so that he director could be removed at will by the president. Consider other federal agencies whose leadership tends to change with a new occupant in the White House.
Conservatives hail this decision as a win for constitutional principles of greater oversight through better checks and balances. It’s also another cut to the onerous Dodd-Frank legislation:
“This is a good day for democracy, economic freedom, due process and the Constitution,” Texas Republican Rep. Jeb Hensarling, the top financial lawmaker in the House, who is spearheading the drive to curb the agency’s powers, said in response to the ruling.
Hensarling apparently recently introduced legislation calling for the agency to be restructured with a five-person commission replacing the sole director.
Consumer and labor groups oppose the decision:
“There is a need for the banking regulators and the financial regulators to be able to make independent judgments on the merits, outside of the needs of the electoral cycle and concerns about blowback from one lobby or another,” said Brian Simmonds Marshall, policy counsel for Americans for Financial Reform, a coalition of more than 200 civil rights, consumer- and labor-oriented community groups. Marshall said it was important that the director of the CFPB be allowed to serve a full term.
Interestingly, what led to the ruling about the CFPB’s structure was a case of over a mortgage lender accused of accepting illegal kickbacks from mortgage insurers. For the alleged violation they were ordered to pay a “small” $6.4 million sanction, but the CFPB Director Richard Cordray unilaterally upped the sanctions to $109 million – prompting an outcry. You can say that Cordray cooked his own goose.
Restructuring the leadership of the agency seems like a good idea, but in the long-run does nothing to dismantle the agency, which has added new layers of red tape and costs to businesses and consumers just based on the whims of an activist leader like Cordray.