Inside Financial Services

A Judge Calls Foul On the CFPB

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I know it can be a mistake to make too much of what judges say during oral arguments in the course of civil litigation, but I was still encouraged when I read that a Federal judge this week wondered out loud whether the Consumer Finance Protection Bureau, that regulatory monstrosity created by the Dodd-Frank bill, is even constitutional.

He’s on to something! The judge, Brett Kavanaugh of the U.S. Court of Appeals for the D.C. Circuit, is part of a panel hearing a case between the CFPB and PHH Corp. over the size of a fine PHH must pay the regulator. During the course of the argument, Kavanaugh noted (according to the Daily Caller) that it is “very dangerous in our system” that an agency has so much power and yet is unaccountable to elected officials. I haven’t seen the full transcript of Judge Kavanuagh’s remarks, but I suspect I know what makes him so uneasy. Like, for instance, the fact that a) the CFPB is funded via directly by the Federal Reserve rather than Congressional appropriation and so is essentially immune to oversight; b) the agency is run by a single director rather than a bipartisan board the way other regulatory agencies are run; and c) its director can’t be fired by Congress or the president. Kavanaugh suspects the CFPB’s structure violates the separation of powers laid out in the Constitution and so may be unlawful.

Good. As I’ve noted here before, the CFPB is an abomination, and an affront to representative democracy. The head of the agency can do whatever he wants–and often does. Which is why, for instance, the CFPB can gave itself an essentially unlimited budget on its headquarters renovation (the project is costing almost twice per square foot than the Bellagio in Las Vegas!) without any ramifications. Institutions that fall under its heavy hand have little recourse other than to do whatever it wants.

The Daily Caller reports that Judge Kavanaugh told the CFPB’s lawyers to “address whether other federal agencies had ever been headed by one person and, if such a structure violated separation of powers, what the court should do about it.” Hopefully, the case will make to the full D.C. Circuit, which will then do the right thing and declare the CFPB’s structure to be in violation of the Constitution.

The CFPB can actually do a lot of good, in my view. Financial services providers occasionally have trouble resisting the temptation to take advantage of their customers, so that reasonable oversight can be a good thing. But an unaccountable regulator like the CFPB isn’t just bad for the system, it’s bad for the country.

What do you think? Let me know!

6 Responses to “A Judge Calls Foul On the CFPB”

  1. Anonymous

    Government run amok . Orwell not as a warning but as a guideline

  2. SWPilgrim

    I would also suggest that the designation of Queen Elizabeth and the conferring of divine rights is not what the Founding Fathers had in mind. Quite obvious to any History 001 student.

  3. Edward F. McGinley, III

    Only scoundrels like Christopher Dodd and Barney Frank could conjure up something as absurd as an agency with a “head” accountable to “no one”.
    Some democracy we’ve got going on in D.C.
    What can we look forward to in the future, in light of the (recent) past. ?

    Edward McGinley in Villanova, PA.

  4. etoleary

    I think the CFPB presents three separate issues to be discussed.

    First is the manner of its oversight and governance. Obviously, something is off base here and needs to be fixed.

    Second is the basic work of the CFPB. Is it useful? This is really a question for the consumers of banking services, not the bankers to address.

    Third, how does the public assure itself that fringe agendas such as the aberrational thinking around “Fair Lending” not intrude on the legitimate functions of supervision? This gets back to the first question which is governance of the agency. This is an unfinished job.

  5. Morgan's Mom

    Wasn’t Elizabeth Warren a big part of this unaccountable monstrosity? Hmm I wonder since there is no oversight or real accountability, maybe the creators of the CFPB get kickbacks with the agencies unlimited budget?????????? I applaud the judge for taking notice and hopefully good will come of this corruption.

  6. Louisiana delegate

    Good points by Tom and the commenters. As a community banker I personally lobbied several swing voters in Congress using exactly these points before passage of the legislation creating CFPB.
    We will need to elect representatives, Senators and a President who actully want to follow the constitution. No democrats fit this description.
    Also, it is laughable to think that the DC court will find as Tom hopes.

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