CFPB lacks constitutional checks and balances

The Senate’s problem with Cordray was not at all personal, but rather, was a matter of principle involving serious constitutional concerns about the new agency itself. Sen. Richard Shelby (R-Ala.), wrote to President Obama on May 5 calling on him to support structural changes to the CFPB that would enhance oversight and make the new agency more accountable. As Shelby as said, “Unless Congress enacts reform, it is only a matter of time before this concentration of power is abused or misused to the detriment of American businesses and consumers.”

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So whether there was a constitutionality sufficient “recess” to appoint Mr. Cordray is a red herring – it is the director’s unchecked power that is the fundamental problem. The new agency simultaneously offends the constitutional authorities – and responsibilities – of both the Congress and the President. And it is no cure that both branches acquiesced in the infringement of their own authority. The Dodd-Frank legislators simply let their good intentions blind them to the need for respecting traditional checks and balances. 

The CFPB is far out of line with the model for other independent agencies that have passed constitutional muster. First and foremost, the CFPB is headed by a single individual who not only does not take direction from or report to the president, but he is not even required to justify himself to a board of fellow commissioners as is the case for the Federal Reserve Board, Consumer Protection Safety Commission, FCC, FTC, SEC, CFTC, NLRB, etc. etc. 

But the board is not only immunized from presidential control, Congress is also cut out. Dodd-Frank says that, “Notwithstanding any other provision in this title, the funds derived from the Federal Reserve System pursuant to this subsection shall not be subject to review by the Committees on Appropriations of the House of Representatives and the Senate.”  In other words, the CFPB can tap up to 12 percent of the Federal Reserve’s operating budget – hundreds of millions of dollars – without any oversight from Congress, the president, or the Office of Management and Budget! Not only is the CFPB self-funding, with no questions asked, but Dodd-Frank goes on to say that, “Funds obtained by or transferred to the [CFPB] Bureau Fund shall not be construed to be Government funds or appropriated monies.”   

Really? Someone less clever than an OLC lawyer might ask, “Is that even legal?”

The only body that has some ability to restrain the CFPB, the Financial Stability Oversight Council, also created in Dodd-Frank, can only do so for actions that “put the safety and soundness of the United States banking system or the stability of the financial system of the United States at risk” Talk about a high bar; if things get that bad, oversight of the CFPB will be the least of our worries.

The Supreme Court will likely have a problem with the concentration of unchecked power in the hands of the CFPB Director.  Writing for the Court in Free Enterprise Fund v. PCAOB, the Chief Justice struck down part of a law setting up a new independent agency that was far less powerful agency than the CFPB. Chief Justice Roberts wrote that: “No one doubts Congress’s power to create a vast and varied federal bureaucracy. But where, in all this, is the role for oversight by an elected president?” 

So where does the public turn if the new agency starts pumping out unreasonable rules or abusing its enforcement powers? For example, President Obama has made clear that federal agencies that report to him must balance the cost of their regulations against the expected benefits. But only the president can truly strike this crucial balance, not the all-powerful director of an insulated, archly independent, single-mission enforcement agency. 

While the structure of the CFPB established in Dodd-Frank may in fact advance regulatory “efficiency,” it is, as the Chief Justice wrote in PCAOB, an affront to “the primary objec­tives—or the hallmarks—of democratic government.”

Thus, the fundamental debate about the CFPB and Cordray’s recess appointment should not turn on whether the Senate was in town during a pro forma session or not.  The real question is whether there is anyone home to hold the new agency accountable to the checks and balances of the Constitution.


Alan Charles Raul, a lawyer in Washington D.C., served as vice chairman of the Privacy and Civil Liberties Oversight Board from 2006 to 2008.