America’s Most Influential Unaccountable Federal Agency Set to Be Judged by the Supreme Court

The Supreme Court will hear oral arguments Tuesday in a case that might invalidate the most powerful federal administrative agency ever created.

Consumer Financial Protection Bureau v. Community Financial Services Association of America is an appeal of the Fifth Circuit’s unanimous holding that the CFPB’s use of the Federal Reserve System to fund its operations violates the Constitution’s separation of powers.

That opinion declared that the agency’s “perpetual insulation from Congress’ appropriation power, including the express exemption from congressional review of its funding, renders” it unaccountable “to Congress and, ultimately, to the people.”

When it was enacted as part of the 2010 Dodd-Frank Act, the bureau assumed the administration of 18 existing federal statutes.

It was given unprecedented regulatory-enforcement powers, including the authority to conduct investigations, initiate administrative proceedings and litigate civil actions in its own name, potentially resulting in civil penalties as high as $1,000,000 for each day a violation occurs.

Its director, appointed by the president, can only be removed for cause, and the Federal Reserve must provide funding the director deems “reasonably necessary to carry out” the bureau’s responsibilities — up to 12% of the Fed’s operating expenses.

The unprecedented breadth of the CFPB’s powers has surrounded the agency with controversy ever since.

It’s taken more than 300 actions against American companies since it opened — many of which have harmed American consumers.

It’s made small short-term loans extremely difficult to get.

It’s trying to ban arbitration agreements, even though the Treasury Department found a previous, more limited CFPB attempt to do so would “impose extraordinary costs — generating and transferring $330 million to plaintiffs’ lawyers.”

And it has unilaterally decided to extend the Equal Credit Opportunity Act’s anti-discrimination provisions to companies that don’t even extend credit.

In 2020, Chief Justice John Roberts, writing for a 5-4 majority in Seila Law v. CFPB, held that the director’s insulated tenure was unconstitutional and imposed instead an “at will” standard, meaning a president can fire the agency’s chief.

Though he severed the tenure issue from the funding mechanism then (probably because there is no readily available substitute), Roberts noted the agency “acts like a mini legislature, prosecutor, and court, responsible for creating substantive rules for a wide swath of industries” and “levying knee-buckling penalties against private citizens,” with “no basis in history and no place in our constitutional structure.”

Two justices, Clarence Thomas and Neil Gorsuch, opposed the court’s severability decision, writing that “independent agencies pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.”

And Amy Coney Barrett joined the court after that decision.

So the Supremes may well hand down an even tougher opinion in next week’s case.

The court agreed to hear the CFPB’s appeal in February, but in March, the Second Circuit issued a unanimous three-judge opinion of its own, upholding the bureau’s funding mechanism.

The panel felt the Constitution’s requirement that “No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law” had been satisfied simply by Congress’ decision to enact the CFPB’s funding mechanism as part of Dodd-Frank.

Notwithstanding that opinion, the precedent set by bestowing such enormous enforcement authority on an independent agency funded outside the appropriations process deserves reversal.

It’s probably no accident oral arguments are taking place so early.

The court customarily takes its vote on the Wednesday or Friday following oral argument, Oct. 4 or 6 in this instance.

If that happens, a final opinion could be issued before the end of the calendar year, and if the court throws out the funding mechanism as unconstitutional, it could also choose to delay imposition of their ruling and give the Congress the whole of 2024 to craft an alternative.

Something must be done: The CFPB has more power than any agency in US history, and its potential to abuse this authority is enormous.

Thomas M. Boyd is a former assistant attorney general, appointed by President Ronald Reagan.

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