Supreme Court’s Ruling on Consumer Financial Protection Bureau Will Have Far-Reaching Effects

As Senator Elizabeth Warren seems to be emerging from the pack, the Supreme Court is set to address the constitutionality of the Consumer Financial Protection Bureau, Warren’s brainchild.

From its name, you might gather that the CFPB was created to prevent consumers from being cheated. In reality, many of its actions were designed to limit the choices of consumers, preventing them from making their own financial decision.

The CFPB is one of the numerous federal agencies that have broad powers and constitute what we call the administrative state. These agencies have such vast powers because Congress writes vague laws and gives these agencies the authority to define and implement the laws.

But, as Peter Wallison points out, the CFPB is even more powerful than he other agencies. It is in a class by itself. Wallison writes:

The CFPB case is not only an example of this problem, but represents a different and more dangerous tack — creating an agency with vast legislative authority that is answerable to no one, not even Congress.

The brainchild of Sen. Elizabeth Warren, the CFPB was given plenary authority to enforce all federal laws that apply to financial transactions with consumers. But its power was broadened beyond existing laws when it was authorized to take enforcement action on any transaction it finds to be “unfair, deceptive, or abusive.” The term “abusive” was not defined by Congress in the act, and thus delegated to the CFPB a vast field for the agency to define and pursue.

Although this kind of delegation is not new, there are two other areas where the Dodd-Frank Act — the authorizing legislation for the CFPB — represents a dangerous step in support of an even more powerful and uncontrolled administrative state.

First, it gives the CFPB’s director a five-year term of office, protected from removal by the president other than for “inefficiency, neglect of duty, or malfeasance.” This places the director outside the control of the president, whose ability to pursue the policies he was elected to implement depends crucially on the ability to remove and replace the senior officials of executive agencies.

That’s not all:

But the Dodd-Frank Act went even further in attempting to make the CFPB independent, placing it beyond the control of Congress itself. Almost all agencies of the executive branch receive their funds in annual appropriations from Congress, but not the CFPB. This agency was made a bureau of the Federal Reserve, and was to receive its funding from the Fed at its director’s request. To ensure that even the independent Fed did not use this funding authority to control the CFPB, Congress made clear in Dodd-Frank that the Fed was to have no ability to affect the agency’s actions. 

The Supreme Court will address whether the director can be given such power, which would put him beyond the authority of anyone or any other institution in government.

If the Court were to approve the CFPB's structure, Wallison warns, we may see Congress creating more of these super-agencies, beyond normal controls, and enlarging the sway of control administrative state.