Defenders and detractors alike have debated the constitutionality of the Consumer Financial Protection Bureau for years. Now, nearly a decade later, the U.S. Supreme Court is set to answer the question once and for all with a ruling in Seila Law vs. CFPB.
Some legal scholars speculate the Supreme Court will make the director fireable “at will” instead of “for cause,” as Justice Brett Kavanaugh did when he sat on the U.S. Court of Appeals. Such a ruling would make the CFPB constitutional yet even more political because the president could fire the director any time there was a disagreement. Others argue the court could just strike down the bureau altogether.
Perhaps Congress will use the threat of the CFPB being invalidated or having its regulatory independence taken away as impetus to create a constitutional leadership structure.
Before talking about the solution, it would be wise to see how we ended up here in the first place.
The crux of the matter goes back to CFPB’s flawed leadership structure, which I call a dictatorship. I cannot think of any other regulatory head with as vast of powers as the director. There are no fellow commissioners to engage in any rulemaking, enforcement and supervisory actions. The agency lacks transparency and has literally announced decisions affecting the financial lives of virtually every American in the middle of the night. In fact, the CFPB does not even have to justify its budget, receiving funds from the Federal Reserve without any real oversight.
This structure has led many to challenge the bureau’s independence, arguing it operates as a fourth branch of government.
The Supreme Court justices must decide whether the bureau is an unconstitutional fourth branch and, if so, what next.
Making the CFPB director removable “at will” would not give consumers or the institutions under the bureau’s supervision the long-term certainty and stability they deserve.
Additionally, a director who can be removed as easily as every other political appointee was never the intent of Congress when establishing the CFPB. As CBA argues in an amicus brief to the Supreme Court, the justices cannot use the severability clause to change the bureau’s “for cause” director to an “at will” position without fundamentally altering Congress’ intent to create an independent agency.
Since the court cannot sever the leadership structure without fundamentally altering Section X of the Dodd-Frank Act, the only solution left is to strike down the entire CFPB — something Democrats in Congress and CBA would not support.
Striking the entire agency would create even more regulatory uncertainty and deprive financial institutions the stable regulatory environment necessary to extend credit to consumers and small businesses. As we saw after the departure of Director Richard Cordray, the CFPB’s current single-director governance structure is subject to dramatic political shifts and strains.
So what is the answer?
The appropriate and sensible remedy here is for Congress to enact, whether on its own or through a court directive, legislative reforms to create a bipartisan, Senate-confirmed, five-person commission to lead the bureau — as the House of Representatives originally passed in 2010.
As demonstrated by other government regulators with multi-member leadership, a bipartisan commission would bring certainty and predictability. A structural change would positively affect the entire bureau and the laws impacting all Americans.
The CFPB’s single-director leadership structure has created a political organization where one person, with virtually unlimited authority and budget, can pass or undo regulations for practically every financial institution and consumer in the country. The bureau’s mission is too critical for this uncertainty to continue and since Congress has failed to bring certainty and stability to the CFPB on its own, perhaps the Supreme Court can give them another chance.
Richard Hunt is the President and CEO of the Consumer Bankers Association, the only member-driven trade association focused exclusively on retail banking. CBA members include the nation’s largest retail banks with 85% holding more than $10 billion in assets.
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