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This week a panel of three judges on the U.S. 5th Circuit Court of Appeals, which includes Louisiana, ruled that the Consumer Financial Protection Bureau’s (CFPB) funding method is unconstitutional.
The CFPB was intended to regulate a myriad of consumer protection laws, but without Congressional or executive branch oversight. This is a recipe for unconstitutional autocratic totalitarianism.
Judge Edith Jones described the CFPB in this way:
“Created in 2009, the Consumer Financial Protection Bureau is an administrative agency that was expressly designed to answer to neither of the politically accountable branches. Unlike other agencies, Congress put the CFPB’s staggering amalgam of legislative, judicial, and executive power in the hands of a single Director serving a five-year term and removable by the President only for cause; and Congress insulated the agency from the ordinary congressional appropriations process.”
It’s worth noting that the CFPB is also empowered to conduct investigations, issue subpoenas and “seek a dizzying array of penalties” including civil penalties of up to $1, 190, 546 per day.”
“Even among self-funded agencies, the Bureau is unique,” Judge Cory Wilson wrote. “The Bureau’s perpetual self-directed, double-insulated funding structure goes a significant step further than that enjoyed by the other agencies on offer.”
Americans for Tax Reform describes the law in this way:
“Under the Dodd-Frank Act, the CFPB was granted authority to supervise, enforce, and regulate consumer protection laws … including “deposit taking, mortgages, credit cards and other extensions of credit, loan servicing, check guaranteeing, collection of consumer report data, debt collection associated with consumer financial products and services, real estate settlement, money transmitting, and financial data processing.” (ATR, 10-21-22).
That is an enormous portfolio!
The 5th Circuit ruling principally holds that the CFPB’s funding structure—in which the agency receives funds through the Federal Reserve, rather than congressional appropriations—violates the U.S. Constitution’s separation of powers. “Congress’s decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers,” the Court said.
CFPB rose from the 2008 financial crisis but was a drastic and misguided legislative approach. Democrats created the CFPB in the 2010 Dodd-Frank law, supposedly as a way to shield the Bureau from political pressures that could impact its oversight of the finance industry.
It’s done the opposite—it created a financial dictator.
This powerful, untouchable federal agency may arbitrarily reach into and target any aspect of our trillions-of-dollars financial industry. This includes demanding, under the threat of fines and penalties, the use of highly controversial Environmental, Social, and Governance (ESG) factors. An increasing trend among investors is to apply these kinds of non-financial ESG metrics as part of the process to identify material risks and growth opportunities.
This is ludicrous, of course. Investment decisions are made based upon considerations of profit or increasing market share, not upon whether a particular entity is sufficiently Woke—whether with regard to so-called racial “justice,” “equity,” climate change or anything else.
In short, this ruling is welcomed by those who have fought to shrink the CFPB’s reach and limit its ability to police financial services because the agency lacks both objectivity and accountability.
It’s important to recall that the U.S. Supreme Court itself, in 2020, ruled that another provision of the CFPB’s structure — a single director who could only be fired for cause, rather than at will, by the president — violated the Constitution’s separation of powers.
As we know, the Separation of Powers means that our three branches of government, Executive, Legislative and Judicial, are required to “stay in their own lanes” such that one branch could no more increase its power than it can give it away or diminish it.
No reasonable person doubts the need to regulate our financial industries, but that regulation must come from our Legislative and Executive branches—not some powerful, free-floating entity that effectively answers to no one.
This 5th Circuit panel has struck yet another blow for a return to self-government. I am hopeful that if the U.S. Supreme Court decides to hear this case it will affirm this decision.
Recall Thomas Jefferson’s directive that we were given and must maintain a ‘government by consent of the governed.’ Congress has no authority to give away power granted to it through the Constitution by ‘We the People.’
The People did not consent to the CFPB.