OPINION:
A federal appellate court questioned Tuesday whether the structure of the Consumer Finance Protection Bureau (CFPB) violates the constitutional separation of powers. That question has been on the minds of constitutional scholars and administrative lawyers ever since the Dodd-Frank Act brought forth this Frankenstein agency, which wields all the power and jurisdiction once exercised by seven separate agencies over great swaths of the economy, all without any meaningful oversight by the political branches.
What federal agency would have the gall to answer Congress’ legitimate questions about its extravagant spending with the retort, “Why does that matter to you?” That was CFPB Director Richard Cordray’s response at a congressional hearing to a question about the bureau’s $216 million renovation of its rented building in Washington, D.C. (At a rate of almost $600 per square foot, that is more expensive than the cost of constructing the famously luxurious Bellagio Hotel in Las Vegas.) But Mr. Cordray’s impudence is to be expected from an all-powerful federal agency with a virtually limitless budget, free of any risk of congressional defunding.
The bureau’s annual budget is set not by ordinary congressional appropriation but by an unrestricted grant of up to 12 percent of the operating budget of the Federal Reserve, another independent agency. The congressional budget committees cannot even review the CFPB’s budgetary decisions.
The CFPB is equally independent from the president, even though it is the president’s duty to “take Care that the Laws be faithfully executed.” As President Truman noted, “the buck stops here”; democratic accountability for executive action rests with the president. Not so for the CFPB. The president cannot fire the CFPB director except for cause. And because the director’s statutory term is five years long, a president may not even have an opportunity to fill the office during his term.
Unlike multimember commissions staffed by a series of appointees with overlapping terms, all of the CFPB’s vast power has been concentrated in the hands of a single individual, the director, who is a law unto himself. He can ignore the president and Congress with impunity and set his own policies, picking and choosing which segments of the economy to target for his own reasons, totally immune from accountability to the voters.
With its vast resources and unchecked enforcement power, the CFPB has been set loose on the American economy — the lawgiver, prosecutor, judge and jury all rolled into one — with a broad mandate to “regulate the offering and provision of consumer financial products or services,” and to protect consumers “from unfair, deceptive, or abusive acts and practices,” as the director in his wisdom defines each of those broad terms. In exercising its extraordinary power, the CFPB is free to overturn other agencies’ settled interpretations of the nation’s financial laws. To make matters worse, instead of setting out its interpretations prospectively through ordinary rule-making, the bureau frequently deliberately operates by enforcement after the fact, so it is impossible for businesses to know in advance whether their conduct is legal or not.
That is what happened in the case argued Tuesday. Without notice, the CFPB rewrote the Real Estate Settlement Procedures Act (RESPA) to outlaw mortgage reinsurance practices that the statute plainly allows. The federal government had expressly said for two decades that RESPA permitted these reinsurance arrangements, and numerous courts had read the statute the same way. But the CFPB director had the arrogance to impose his new interpretation retroactively to the tune of a $109 million penalty — after overruling the administrative law judge assigned to the case. No agency answerable to the elected branches of government would engage in this kind of lawless bullying.
The structural features of the CFPB, combined with its broad powers, bring the bureau well outside the ambit of our Constitution’s system of separated powers. Since I and others filed the first complaint against the CFPB’s unconstitutional structure in 2012, several other cases have raised similar arguments. So far, the agency has escaped judicial review. But Tuesday’s argument before a panel of experienced and well-respected judges on the U.S. Court of Appeals for the District of Columbia Circuit suggests this politically unaccountable agency will soon be brought to heel.
A federal agency that wields such vast power over the American economy should be made to care what the American people think about its policies and actions. Fortunately, the judiciary can review the agency’s enforcement actions for violation of law, including, critically, violations of the Constitution. Whether in this case or another, the courts must stand up to an agency whose “accumulation of all powers, legislative, executive, and judiciary, in the same hands” represents what James Madison called “the very definition of tyranny.”
• C. Boyden Gray served as White House counsel to President George H.W. Bush. He is the founding partner of Boyden Gray & Associates PLLC, which represents State National Bank of Big Spring, Texas, in a pending constitutional challenge to the Consumer Financial Protection Bureau.
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