Supreme Court Should Fire The Rogue Regulators At The CFPB

November 1, 2023 7:19 pm
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The Consumer Financial Protection Bureau (CFPB) emerged like a mutant monster from the politically radioactive rubble of the 2008 financial crisis. Conceived by then-academic Elizabeth Warren, D-Mass., and created by the Dodd-Frank Act, Congress gave the agency largely unlimited authority over much of the financial sector. It has often ruled arbitrarily as a de facto legislative body, shielded by design from traditional political checks and accountability measures.

The CFPB is once again before the Supreme Court. Two industry groups have objected to a 2017 rule that regulates payday lenders. They are challenging the very foundation of the agency’s constitutionality.

The last time the court considered a challenge to the CFPB’s structure, it confirmed that — as a constitutional matter — Congress may not bar the president from firing the agency’s leadership. This time, the justices will consider a bigger issue: whether the CFPB’s funding mechanism (which circumvents the standard legislative appropriations process) violates the Constitution’s appropriations clause, which vests in Congress the power of the purse.

CFPB Appropriates Its Own Funds

Any textualist or originalist should view the CFPB’s funding scheme as anti-constitutional. Per statute, it effectively funds itself by drawing monies from the Federal Reserve, another agency Congress insulated from ordinary democratic accountability.

Agency defenders argue that Congress’s open-ended mandate for self-appropriation adheres to constitutional requirements. As noted by Fifth Circuit Court of Appeals Judge Cory T. Wilson, whose ruling the Supreme Court will review, the Consumer Financial Protection Act itself “tacitly admits such a distinction in its decree that ‘[f]unds obtained by or transferred to the Bureau Fund shall not be construed to be … appropriated monies.’”

Many writers (George Will, notably) have already explored the CFPB’s rankly unconstitutional structure. In short, by removing financial regulation from America’s ordinary democratic political process, Congress violated the Constitution. Congress built the agency with far too much insulation from presidential scrutiny and other constitutional checks and balances.

Republicanism vs. Progressivism

The controversy over the CFPB dredges up an old debate. The classical liberal, Anglo-American political doctrine is set against the quintessentially continental and anti-founding tendencies of the Progressive Era of American politics. The notions of placing fiscal powers in democratically accountable legislatures, erecting procedural barriers to resolving legislative questions, and eschewing rule-by-bureaucrat sit squarely within the Anglo-American tradition (the founders’ tradition). They conflict with the Progressive one.

The processes of taxing and fiscal appropriations are inextricably intertwined. By determining how much tax Washington collects or how collected taxes may be spent, these two powers give whoever wields them the same sort of control over the rest of the government.

The framers of the Constitution understood that the legislature’s fiscal powers can restrain overeager executive officials. They, therefore, conscientiously granted them to Congress.

James Madison wrote in Federalist No. 58 that the “power over the purse may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure.” Madison noted that the House of Representatives in particular (the federal government’s most democratic branch, and the one in which all tax proposals must begin) retains the power to “refuse … the supplies requisite for the support of government.”

The Power of the Purse in England

In the British political system, from which the founders borrowed much, Parliament regularly used its fiscal powers to exert control over the king. Indeed, much of the political pressure that exploded into the English Civil War resulted from Parliament’s unwillingness to provide revenue to King Charles I, whom many accused of tyranny. (Parliament’s reticence to fund the crown stemmed largely from royal abuses.)

The havoc of the civil war and the subsequent deficiencies of Charles I’s successors drove the English to resolve the outstanding political and religious tensions by appointing the Protestant William of Orange and his English wife, Mary, to the throne. In the year they ascended, 1689, Parliament passed the English Bill of Rights.

The document provided: “That levying money for or to the use of the Crown by pretense of prerogative, without grant of Parliament, for longer time, or in other manner than the same is or shall be granted, is illegal.” Many scholars portray this document — and the civil war itself — as a reassertion of anciently held English rights rather than a political innovation.

With this tradition in mind, reconsider the CFPB.

CFPB and the Progressive Era

As argued in Reason earlier this year, “Democrats constructed the CFPB as a quintessentially progressive regulatory institution: A partnership of government and big business, helmed by putatively disinterested and de facto unaccountable bureaucrats.” Its structure conforms closely to the philosophies of the Progressive Era’s largest-looming intellectuals, including former President Woodrow Wilson.

Examining the 28th president’s political philosophy can illuminate much because it clashed sharply with the Constitution. Wilson disliked much in the United States’ political tradition. American political institutions such as robust democratic accountability; individual rights; defined, divided, and decentralized political power; and adversarial branches of government slow the progress “enlightened” government officials yearn to implement. Wilson — a thoroughly enlightened official, in his own estimation — chafed at these checks.

To dodge the restraints of the Constitution’s plain meaning, Wilson fathered the notion of the “living Constitution,” defacing the handiwork of Madison. Nor did Thomas Jefferson’s legacy appeal to the 28th president. “No doubt,” Wilson wrote, “a lot of nonsense has been talked about the inalienable rights of the individual, and a great deal that was mere vague sentiment and pleasing speculation has been put forward as fundamental principle.”

Idealizing European Autocracy

Wilson labeled public opinion “a clumsy nuisance” that interfered with his cherished rule by experts. In the same essay, the future president gushed over the administrative successes of European autocrats, lamenting democratic America’s corresponding administrative failures. He warned that “popular sovereignty” constituted a principal obstacle to the institution of an expert-driven administrative state. “An individual sovereign … will embody that one opinion in one command,” Wilson wrote. “But this other sovereign, the people, will have a score of differing opinions.”

Wilson, like many other Progressives, admired the efficacy with which “modern” European rulers — e.g., Vladimir Lenin and Benito Mussolini — managed their nations. “I have seen the future and it works,” declared Lincoln Steffens after touring Lenin’s infant Soviet Union. H.G. Wells in 1932 went so far as to exhort the Oxford Young Liberals to become “liberal fascists” and “enlightened Nazis.” A century on, the technocratic left still daydreams about becoming “China for a Day.”

As Wells’ adjectives suggest, these Progressive intellectuals did not yearn for the bloodiness of fascist Italy, Soviet Russia, Nazi Germany, or Red China. They rather envied those regimes’ perceived ability to impose a totalistic policy agenda without the political and procedural fetters of a liberal, democratic republic. “Why should Russians have all the fun remaking a world?” inquired Stuart Chase, in his 1932 book, The New Deal.

Restoring ‘Divided and Balanced’ Government

Madison and his fellow founders would have objected strongly. “An elective despotism was not the government we fought for,” the Virginian wrote in Federalist No. 48, “but one which should not only be founded on free principles, but in which the powers of government should be so divided and balanced…that no one could transcend their legal limits, without being effectually checked and restrained by the others.”

The CFPB, though created in 2010, recalls some of the Progressive Era’s least American beliefs. Luckily, unlike many of last century’s Supreme Courts, this one has proved itself willing to faithfully interpret the Constitution and to enforce the document’s limitations on executive power.

It should do so again.

David B. McGarry is a policy analyst with the Taxpayers Protection Alliance.

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