Here’s another textbook example of what conservatives regard as “big government.” In response to the mortgage meltdown, caused in large part by government policies, the Democrats pushed through the Dodd-Frank “reform” bill.
It put enormous power into one agency, run by one individual. Not a commission like the FCC or other regulatory agencies. And it put this new agency beyond the reach of Congress.
In its short, unhappy life, the Consumer Financial Protection Bureau has compiled a record of abuse rivaling that of Washington’s most entrenched bureaucracies. But there’s new reason to hope that this misanthropic creation of Dodd-Frank may not reach adulthood.
Readers are by now acquainted with the bureau’s habit of claiming racial bias in lending by guessing which borrowers are black based merely on last names and addresses. Last week a federal judge slapped down the bureau for an investigation into college accreditation for which it had no legal authority. Then there’s the recent case of a mortgage company that was following explicit guidance from another federal agency yet was still ordered by the bureau to pay roughly 18 times the amount determined by the bureau’s own administrative-law judge.
The egregious behavior in the latter case now has a federal appeals court asking deeper questions about the bureau. For example, is any of this constitutional?
The unaccountable agency overturned longstanding interpretations of law and specific guidance from the Department of Housing and Urban Development to claim that PHH Corp. broke the law when it referred customers to mortgage insurers that bought reinsurance from PHH. Before the D.C. Circuit Court of Appeals earlier this month, government lawyer Lawrence DeMille-Wagman admitted “there is evidence that the costs to the industry were more or less the same” and that “there simply isn’t evidence that the borrowers paid a higher price because that’s not required.”
But the bureau has still been demanding $109 million in disgorgement from the company. Will this money soon be flowing to a group of alleged victims identified by the government? Not even. “That goes to the Treasury,” reported Mr. DeMille-Wagman.
But does the bureau really have the authority to conduct such raids on American business? Judges on the D.C. Circuit asked because the consumer bureau is truly something new in Washington: a powerful independent regulatory agency run by a single federal official who cannot be removed from office at the will of the President. The President can only fire the bureau’s director for cause.
Yet the Constitution’s Article II gives the President authority to run the executive branch, and that includes the ability to fire his top officers. Since the 1930s the Supreme Court has blessed power for independent agencies like the Federal Trade Commission, but only when the power is diffused among a bipartisan group of commissioners. And the Court has done so reluctantly. As recently as 2010, the Justices struck down a provision of Sarbanes-Oxley that inhibited the firing of members of the Public Company Accounting Oversight Board.
When Judge Brett Kavanaugh mentioned the “novel structure” of an agency run by one man exercising so much power, Mr. DeMille-Wagman mentioned the Social Security Administration. But Social Security simply collects and distributes money. It can’t tell businesses how to generate the cash to fund payroll taxes or tell beneficiaries how to spend them. When President Bill Clinton enacted the current structure of the Social Security Administration in the 1990s, he noted its constitutional defect and suggested Congress work with him on a solution.
The consumer bureau, on the other hand, roams the financial landscape enforcing 18 statutes and bringing actions that can cost hundreds of millions of dollars. It writes rules governing a wide swath of American business, has the power to define what is “unfair” or “abusive” in financial services, investigates companies and imposes penalties. All the inspector general at the Social Security Administration can do is refer potential violations of law to the Justice Department.
Also unlike Social Security, the consumer bureau simply pulls its budget out of the Federal Reserve, so it has no need to seek annual appropriations from Congress. This too is an infringement on presidential power, because it insulates the bureau from having to compete with other priorities for inclusion in the President’s annual budget request to Congress.
Judge Kavanaugh has previously noted that the Constitution’s Article II gives to the President “not some of the executive power, but all of it.” Attorney Ted Olson, representing PHH before the appellate court, noted that neither the executive nor legislative branch exercises control over this burgeoning federal leviathan. “The only check on this agency is right here,” he told the judges.
For the sake of liberty and the integrity of the separation of powers, they should strike down this offense to constitutional governance.