The reasons the CFPB may be constitutional

John Lande Iowa Banking Law Dickinson Law Des Moines Iowa

Posted on 03/24/2016 at 12:00 AM by John Lande

This blog has been monitoring ongoing litigation challenging the constitutionality of the Consumer Financial Protection Bureau (“CFPB”). Recently, this blog covered the arguments of National Bank of Big Spring (“Bank”) regarding why the CFPB and some of the CFPB’s rules are unconstitutional. After a delay, the CFPB filed its response explaining why the Bank is wrong.

Like the Bank’s argument, the CFPB’s argument is broken down into two separate sections. First, the CFPB addresses the Bank’s argument that CFPB has too much authority. Second, the CFPB addresses the Bank’s argument that rules promulgated while Richard Cordray was a recess appointee are unconstitutional.

The CFPB Does Not Have Too Much Authority

The CFPB disagrees with the Bank’s assertion it usurps the role of the President and Congress. The CFPB begins its argument by addressing the Bank’s argument that it is too independent from the President. The CFPB points out that that there are other agency directors that are independent and can only be removed by the President for good cause. These agencies, such as the Federal Trade Commission and Commodities Futures Trading Commission, are independent from the executive branch just like the CFPB.

The CFPB also points out that there is no material distinction between the FTC, which is headed by a multi-member commission, and the CFPB which is headed by a single director. According to the CFPB, a single director is actually more accountable to the President than a multi-member commission. The CFPB also points out that the CFPB’s authority to ask Congress directly for new legislation does not undermine the President’s authority.

The CFPB also asserts that its authority does not undermine congressional authority to reign in agencies through appropriations. Since the CFPB is funded entirely by the Federal Reserve, Congress has no authority over the CFPB’s budget. The CFPB points out that the Constitution does not contain any limit on the duration of congressional appropriations, so there is no constitutional problem with the CFPB being self-funded by the Federal Reserve.

Congress also has the authority to change the CFPB in the future if it decides to pass a new statute. The only impediment to Congress passing a law changing the CFPB is the President’s veto—the same impediment to changing any law.

CFPB Rules Are Valid

The CFPB is similarly dismissive of the Bank’s arguments regarding regulations promulgated while Richard Cordray was a recess appointee. The CFPB first claims that the Bank’s arguments are moot now that the CFPB has ratified all of the regulations promulgated while Mr. Cordray was a recess appointee.

Second, the CFPB claims that the Bank lacks standing to challenge many of the regulations. According to the CFPB the Bank has not alleged how it will be harmed by any of the rules promulgated before Mr. Cordray was confirmed.

Finally, the CFPB points out that shortly after Mr. Cordray was confirmed the CFPB ratified all of the rules that it previously promulgated. This blog covered that statement when it was released, and noted the likely challenges that would arise from that action. The CFPB claims that it has long been the rule that an agency can ratify rules promulgated when the agency lacked authority to take the challenged action. The CFPB also points out that the Bank misunderstands the authority the CFPB has as a matter of federal law to promulgate rules and ratify them.

The Bank will have an opportunity to file a response to the CFPB’s brief. The court will likely take several months to issue a ruling. Regardless of whether the CFPB or Bank prevails, the case will be appealed to the United States Court of Appeals for the District of Columbia. Whatever the court of appeals decides, it is likely that the losing party will seek review before the United States Supreme Court.

While anything can happen when the Supreme Court takes a case, the recent passing of Justice Antonin Scalia will likely make the Bank’s case harder to win. This blog previously covered how Justice Scalia had grown tired of deference to agency authority. With one less sympathetic ear on the Court, the Bank’s already difficult road to victory may be even more challenging.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

Categories: John Lande, Banking Law


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