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The Supreme Court Should Rein In the Administrative State in CFPB Case

If ever there was a poster child for the progressive vision of an all-powerful and unaccountable administrative state, it is the Consumer Financial Protection Bureau (CFPB). It is only fitting, then, that the nation’s highest Court has been forced to step in to determine what course the U.S. will take when it comes to the constitutional separation of powers.

On Tuesday, Supreme Court Justices heard oral arguments in Consumer Financial Protection Bureau v. Community Financial Services Association of America. The narrow issue before the court is whether the CFPB’s bizarre and historically unprecedented funding mechanism of simply issuing demand letters to the Federal Reserve violates the appropriations clause of the Constitution. Progressive Justices are relying on statistics rather than the Constitution to prop up this brazen affront to the separation of powers. “This is a rounding error in the federal budget,” Justice Elena Kagan said of the $641.5 million the agency received last year.

The main issue in this case is not the price tag, but the process. We urged Justices in a friend-of-the-court brief—joined by former colleagues from both the agency and Congress—to restore the power of the purse to Congress so that the American people, through their elected representatives, can actually have a say in how the CFPB operates. The outcome of this case will help determine the answer to an even more important question, namely whether under our Constitution “all legislative powers” are truly vested in Congress or whether sweeping portions of them can be exercised by unelected administrators like those at the CFPB.

The Dodd-Frank Act created the CFPB in 2010 and granted it vast regulatory authority over consumer finance. To exercise this authority, the CFPB’s director—a single individual—was given powers that should belong to the legislative, executive, and judiciary. The agency makes its own rules, enforces them, and then adjudicates them in its own courts with its own prosecutors. Dodd-Frank also hyper-insulated the CFPB from accountability by circumventing the congressional appropriations process, bringing us to the current litigation.

Because of its unaccountable and unconstitutional design, the CFPB’s brief history is already replete with abuses and violations of the agency’s statutory authority. For example, in 2015 it sought to indirectly regulate auto dealer compensation even though Congress had expressly prohibited the bureau from regulating auto dealers in statute. The CFPB has also attempted to apply the Equal Credit Opportunity Act to people who had not even applied for credit in the first place. The D.C. Circuit Court of Appeals has found the CFPB “violated bedrock principles of due process” when in it attempted to fine a company by retroactively applying its new interpretation of an old and established law. Most recently the CFPB has launched an initiative to cut financial service fees that it unilaterally and subjectively deems “junk fees,” a form of price controls, without citing any violation of law.

No less an authority than James Madison wrote in Federalist No. 58 that Congress’ power of the purse is “that powerful instrument” that serves as a check on “all the overgrown prerogatives of the other branches of the government.” He went on to describe the power, “as the most complete and effectual weapon” to “arm the immediate representatives of the people, for obtaining a redress of every grievance.” When it comes to the CFPB, there are a lot of grievances to be redressed and they will likely remain so as long as the CFPB is permitted to bypass Congress for its funding.

The CFPB argued before the Supreme Court that there are other government agencies not funded through congressional appropriations. There are indeed a rare few. However, all of them are funded though some type of user fee or assessment. The CFPB stands alone in its ability to extract funds from the Federal Reserve at will and even squirrel some away for a rainy day.

The CFPB further argued that because Congress created its funding mechanism in the first place, no congressional powers are being usurped. But even if Congress attempts to enfeeble itself, it cannot unilaterally amend the Constitution and shirk its responsibilities. The appropriations clause is clear and remains foundational to our system of checks and balances.

The case before the Supreme Court is so important because we are increasingly losing the rule of law to the discretion of regulators. It is sobering to note that while Congress may pass a couple of hundred laws per year, agencies typically issue more than 3,000 regulations annually and the Biden administration is certainly keeping pace. Given that administrative rules are just as enforceable as the law itself, one can argue that over 90 percent of our “laws” are written by people who never have to face a ballot box.

Agency rules can extend well beyond minor ministerial matters. The annual costs of mushrooming federal regulations currently amount to 8 percent of GDP, according to a recent report of the Competitive Enterprise Institute. As staggering as the financial costs may be to our economy, though, the far greater cost is the damage done to the foundational principles of coequal branches of government, due process, and the value of our voting franchise. As threats to democracy are being debated, the rise of government-by-agency clearly needs to be recognized as one of them.

In its last session the Supreme Court ruled in West Virginia v. EPA that government agencies cannot assume sweeping administrative powers without clear grants of authority from Congress. Chalk up one victory for Article l of the Constitution. The Supreme Court owes it to the American people and their elected representatives to chalk up another in a decision that holds true to sound jurisprudence rather than statistics.

Jeb Hensarling is a former chairman of the House Financial Services Committee (2013-2019) and an Advisory Council member to Americans for Prosperity. Brian Johnson is the former Deputy Director of the Consumer Financial Protection Bureau and Chief Financial Institutions Counsel for the House Committee on Financial Services.

The views expressed in this article are the writers’ own.

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