- - Tuesday, October 29, 2019

The design of the United States government is riddled with checks and balances intended to prevent any one branch from becoming so powerful it could dominate the other two. This, the Founders believed, would safeguard our liberties.

All that went out the window when, as part of the Dodd-Frank banking reform legislation, Congress created an agency called the Consumer Financial Protection Bureau which, at every turn, violates these principles.

Those responsible for its design, which include Massachusetts Sen. and Democratic presidential candidate Elizabeth Warren, produced what could only be called a bureaucratic dream: An agency with virtually limitless authority accountable to no one. Its funding comes from the Federal Reserve, which means it need not worry about securing congressional appropriations and can, therefore, insulate itself from congressional oversight.

Its critics have called it “the most independent of independent agencies” because of its lack of accountability to any elected official. In 2016 Brett Kavanaugh, prior to his elevation to the United States Supreme Court, wrote in the matter of PHH Corp. v. CFPB, “other than the president, the director of the CFPB is the single most powerful official in the entire United States government, at least when measured in terms of unilateral power.”

Its abuses of power are frightening. Despite being statutorily prohibited from doing so, it spent months trying to block auto dealers from being able to give loan discounts to car buyers on the grounds that they had been doing it discriminately.



The primary evidence for this, which Congress later slapped down hard, was statistical modeling matching last names with zip codes in order to make an educated guess about the race of someone attempting to finance the purchase of a new car.

In another case, critics say former CFPB Director Richard Cordray greatly exceeded the scope of his authority when his agency filed a proposed “consent judgment” against the National Collegiate Master Student Loan Trusts. In it, the agency sought to penalize holders of debt, the securitization industry, for any potential wrongdoings by third-party debt collectors (called servicers), an action that would disincentivize marketplace lenders from offering not just student loans, but home mortgage lenders, auto loans, personal credit cards and more.

Investors rely on the stability of contract law to anticipate liabilities and risk, and the impact here on the broader securitization industry is obvious: A loss of investor confidence in the sanctity of the negotiated terms of a contract will lead to fewer financing options for the originators of consumer and business loans, and most notably, student loans. This, in turn, will cause consumers to face fewer borrowing opportunities and higher interest rates, causing complete chaos in the U.S. financial marketplace.

Looked at closely, it seems the CFPB, in the name of protecting people, is doing more damage than good. That’s par for the course these days where government is concerned but, due to its unusual structure, this is not the kind of thing that can be fixed through an election or by changing personnel. The insulation surrounding the agency is too thick.

A single federal agency led by a single individual that can make rules, investigate whether they are being violated, issue sanctions, and punish those it finds guilty while not having to answer to anyone is the kind of concentration of power the Founders specifically feared when they wrote the Constitution. Indeed, Justice Kavanaugh found it to be unconstitutional before being reversed by the entire D.C. Circuit sitting en banc.

Well, the issue has arisen again. The high court recently agreed to take up a case coming out of the infamous Ninth Circuit, Seila Law LLC v. Consumer Financial Protection Bureau, in which a law firm that assists in resolving personal-debt issues and whose work has attracted the interest of the CFPB argues the agency’s structure violates the Constitution.

It’s hard to argue it doesn’t. The CFPB is the leading edge of the expanding administrative state, the professional, permanent government that continues to carry out what it perceives to be its mission regardless of what elected officials and voters may intend. It’s possible the court could, in rendering a decision, offer clues on how to bring the agency’s organization into constitutional compliance. It’s done things like that before. But that would be a mistake.

The only solution here is to declare the CFPB unconstitutional which, while it can’t undo the damage that’s already been done, will at least prevent things from getting worse. The agency needs to be dissolved so that Congress if it thinks it’s still needed, has to start again to produce something in line with what the founders would see as passing constitutional muster. This would be a much-needed warning shot across the bow of those who think, and there are a bunch of them running for president right now, that America’s future lies in unaccountability in government. The sovereignty of the people must be defended.

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