A federal appeals court has just ruled that a powerful financial services watchdog group’s funding scheme is unconstitutional, dealing a blow to the agency. Additionally, the agency’s 2017 banking regulations on lenders offering low-value loans (i.e. payday loans) are out.
Supporters of the watchdog group will make the decision an open door for lenders to prey on consumers. We don’t buy it. As with other major issues, Congress is too willing to cede its authority to unelected and unaccountable bureaucrats. Turning a blind eye as agencies enforce damaging regulations does nothing to benefit consumers.
Imagine Congress creating a federal agency with immense power to wield against Americans, but limited by little oversight or accountability.
The Consumer Financial Protection Bureau (CFPB) is the epitome of such an agency. Designed by Democratic Senator Elizabeth Warren to be a highly independent financial services watchdog, the CFPB was created during the Obama era as part of Dodd-Frank. Democrats separated CFPB funding from the Congressional appropriations process by handing the purse strings to the Federal Reserve.
The left may have thought this was a smart way to funnel unlimited funds to this agency to tackle the lending industry without Congress getting too involved. But that’s exactly what a federal appeals court has ruled against Congress’ own constitutional responsibilities.
A three-member U.S. 5th Circuit Court of Appeals in New Orleans has ruled that the CFPB’s independent funding program violates the separation of powers principles of the U.S. Constitution.
In his opinion, the Court explained that the CFPB differs from a “large majority” of executive agencies in its mode of financing. First, the Federal Reserve writes a check to the CFPB for anything the agency director requests. Second, the Federal Reserve’s source of funding is outside of the appropriation process.
Thus, Congress did not simply cede direct control of the Bureau’s budget by isolating it from annual appropriations or other time-limited appropriations. He also ceded indirect control by providing that the Bureau’s self-determined funding comes from a source that is itself outside the appropriations process – a double insulation of the Congressional purse strings that is “unprecedented” in the world. entire government.
Moreover, this agency has sweeping powers that make Congress’ lack of control over its funding all the more striking:
It acts as a mini-legislature, prosecutor, and court, tasked with creating substantive rules for a wide range of industries, prosecuting violations, and imposing knee-high penalties against individuals. … An expansive executive agency insulated (no, double-insulated) from the purse strings of Congress, expressly exempt from budget review, and headed by a single director removable at the whim of the president is the epitome of unifying the stock exchange and of the sword in the executive – an abomination, the authors warned, “would destroy that division of powers on which political liberty is founded.
As such, the court held that the CFPB was “an innovation with no roots in history or tradition”.
Additionally, the court struck down the CFPB’s payday loan rule finding that the agency effectively had no legal way to enforce it without using unconstitutional funding.
What does that mean
The invalidation of the payday loan rule is a good result. As we wrotethe CFPB tried to crack down on the lending industry by implementing this rule that would deny women, un/underbanked, and low-income Americans access to credit when they need it.
The big picture is that the CFPB has been brought to its knees. This decision will likely be appealed to the Supreme Court. However, this decision deeply reduces the power of the agency.
No wonder Senator Warren threw a fit. She lambasted the decision, engaged in fearmongering about the consequences of the decision, and then vilified the court as a group of “right-wing” extremists.
The editorial board of the the wall street journal Explain implications of this decision:
The CFPB decision continues the trend of originalist judges who attempt to restore the correct understanding of the separation of powers of the Constitution. This means reining in the administrative state and requiring Congress to reassert its powers by writing specific laws and funding the government.
By creating the CFPB, Congress abdicated its duty and created an agency that has too much irresponsible power. The Fifth Circuit has done its duty to name the CFPB as the illegitimate child of Congress.
We couldn’t agree more.