Back when Senator Elizabeth Warren (D-MA) still claimed to be a Republican, she came up with the idea of the Consumer Financial Protection Bureau (CFPB).

That idea, however, morphed into a partisan Democrat operation under Obama, with a structure that sought to exclude itself from Executive or Congressional oversight.  The constitutionality of the CFPB will be decided, yet again, on Wednesday by the D. C. Circuit Court.


Elizabeth Warren’s brainchild was purportedly spawned by a real interest in consumer protection.

Ronald Rubin, writing for the National Review, explains:

In 1988, during my first year of law school, I met a young professor named Elizabeth Warren. She was like a tornado — energetic, fascinating, and scary. She was also a Republican. Despite that last bit of trivia, she hadn’t changed much when Americans began to notice her two decades later.

In fact, a Reagan Republican might have written her 2007 article “Unsafe at Any Rate,” which proposed a new regulatory agency to help consumers understand credit products by simplifying disclosures and ending deceptive industry practices. Free-market economists would approve of her rationale for a “Financial Product Safety Commission:”

To be sure, creating safer marketplaces is not about protecting consumers from all possible bad decisions. . . . Terms hidden in the fine print or obscured with incomprehensible language, unexpected terms, reservation of all power to the seller with nothing left for the buyer, and similar tricks and traps have no place in a well-functioning market. . . .

When markets work, they produce value for both buyers and sellers, both borrowers and lenders. But the basic premise of any free market is full information. When a lender can bury a sentence at the bottom of 47 lines of text saying it can change any term at any time for any reason, the market is broken.

And she wasn’t wrong.  Government meddling in the free market hobbles it, makes it less free.  What Warren didn’t apparently consider is that “good” meddling could be just as crippling as “bad” meddling.  Maybe she did consider it.

As the market destabilized and the political winds shifted, she conveniently jumped ship and joined the Democrats in restructuring her CFPB into a political entity.

Rubin continues:

Over the next two years, the economy collapsed, Democrats gained control of Congress and the White House, and Warren grew famous criticizing big banks in congressional hearings. She lobbied Democrats to include her agency in their Wall Street–reform legislation, arguing that effective enforcement of consumer-protection laws required a regulator independent from politicians beholden to the financial industry. The Democrats had a better idea: They would make her agency independent from Republicans.

To make this work, they had figure out how to circumvent that peskiest of thorns in the side of Democrats: the United States Constitution.

Rubin explains how this was attempted:

Circumventing the Constitution took two steps. First, Democrats inserted a few clever workarounds into the Dodd-Frank Act, which created the CFPB on July 21, 2010. Commissions such as the one Warren first proposed are ostensibly bipartisan, so a president-appointed director would lead the new agency. Since there might be a Republican president one day, the director would be practically irremovable after Senate confirmation to a five-year term that could extend indefinitely until the next director’s confirmation. To prevent future Republican-led Congresses from cutting the bureau’s budget, funding would be guaranteed through Federal Reserve profits rather than taxpayer dollars.

Next, the enlarged new agency would be staffed with Democrats, top to bottom. There would not be a Republican director nominee for at least five years, and if one was ever confirmed, entrenched left-wing managers could undermine “attempts to weaken consumer protection.” The plan wasn’t perfect, but it was pretty good.

The Crux of the Matter: Who Gets to Hire and Fire Executive Branch Officers

Built into the CFPB is a directive that the President can fire its officials only for cause, specifically for “inefficiency, neglect of duty, or malfeasance.”

In short, the president’s authority to hire and fire at will is restricted; the CFPB does not serve at the pleasure of the president, but can remain in place unless the president can show misconduct.  Serving at the president’s will, then, is nonexistent in the makeup of the CFPB.

The Boston Globe explains:

[Richard] Cordray heads the consumer lending bureau championed by Senator Elizabeth Warren, and the White House is actively weighing whether Trump should fire him, according to Republican congressional aides and lobbyists who are in contact with the administration about Cordray’s fate.

. . . .  Politics and legal issues make firing Cordray more complicated than a typical changing of the guard with a new president. The agency is independent, and Cordray enjoys an appointment that does not end until 2018. That means Cordray cannot be dismissed at Trump’s whim.

Under the law that created the agency, the president can dismiss the director only for “inefficiency, neglect of duty, or malfeasance.” That language is why White House lawyers are combing through Cordray’s five-year record as the agency’s chief, looking for infractions that could justify his dismissal, sources said.

“They want to fire him. Their legal counsel are looking at every angle,” said one well-connected lobbyist.

The Question: Is it Constitutional for Congress to Limit Presidential Powers?

. . . or must there be “cause”?

The central question of the suit is one of constitutionality: can the President fire Executive Branch heads at will?  Or can Executive Branch agencies be created to specifically circumvent the president’s authority?

Yahoo News reports:

On Wednesday, 11 D.C. Circuit Court judges will hear arguments over the constitutionality of the Consumer Financial Protection Bureau, an agency created in the wake of the great recession of 2008.

. . . . As it happens, Trump can’t currently fire Cordray, and that’s precisely what lies at the heart of the legal dispute the D.C. Circuit judges will be pondering. In the lawsuit, PHH Corp, a mortgage lender, is challenging the constitutionality of the CFPB’s structure.

. . . . PHH appealed, protesting not only its innocence, but also claiming that Congress violated constitutional separation of powers principles when it specified that the president could remove the director of the CFPB only for cause (e.g., neglect of duty or malfeasance) rather than at will (e.g., for mere policy differences). This arrangement granted the director too much insulation from public accountability, PHH claimed, thereby threatening the liberty of those who fall within the CFPB’s enforcement jurisdiction.

Ramifications of the pending ruling: Federal Housing Finance Agency

Yahoo continues:

Though the fate of the CFPB is a huge question in itself, it’s only part of what’s in play. While not formally challenged in this lawsuit, the structure of the Federal Housing Finance Agency—yet another hotbed of controversy—is also effectively on trial. Since September 2008 FHFA, whose structure closely resembles the CFPB’s, has been the conservator for the giant mortgage finance twins, Fannie Mae and Freddie Mac, which were deemed insolvent during the housing crisis.

Due to FHFA’s contentious 2012 decision to send all future profits of the rebounding companies to the Treasury, effectively nationalizing them, it has become the target of sprawling stockholder litigation with at least $130 billion at stake.

This one will almost certainly make its way to the Supremes.  Have I mentioned lately how grateful I am for the newest Supreme, Justice Gorsuch?


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