An Appeals Court Just Brought The Constitution Down On The Consumer Financial Protection Bureau. What’s Next?

// When the Founding Fathers ™ structured our form of government, they ordered it around one of the most influential impediments to efficiency known to man besides Netflix: the Separation of Powers. The whole point of our Constitutional schema — breaking up and delegating authority amongst the Legislative, Judicial, Executive, and The People, was to create just enough redundancy and internal conflict that not too much gets done within a short amount of time. That great goal sometimes comes at the cost of the governing bodies themselves.

A federal appeals court has ruled that the funding structure of the nation’s most powerful financial watchdog agency, the Consumer Financial Protection Bureau, is unconstitutional….the way the bureau is funded, “violates the Constitution’s structural separation of powers.”

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The reason for the ruling? It all centers around the power of the purse — a power traditionally understood as belonging to Congress.

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[T]he [B]ureau receives its funding from the Federal Reserve, not Congress. It was that part of its structure that the court said violates the Constitution.

“While the great majority of executive agencies rely on annual appropriations for funding, the Bureau does not,” the judges wrote. “Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it.”

This outcome is one of those strange moments where you have to actually pay attention to things that… kind of run smoother if you don’t. For example, the Constitution delegates to Congress the sole authority to declare acts of war. But war tends to be one of those things that lends strategic advantages to those who initiate the first strike or operate under the cover of darkness — formal declarations of that kind rob you of the upper hand. That’s why it would be hard pressed to not assume that, despite the clear Constitutional delegation, the Executive probably does a few things pertaining to conflict with foreign bodies that Congress doesn’t — at least publicly — explicitly greenlight or declare. I would imagine that borderline stratagems which may or may not constitute acts of aggression, say espionage or using social media to undermine democratic processes, would have nearly as much force if they were brazenly announced by Nancy Pelosi.

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You get my point; crossing the lines of constitutionality are far more precedented than meets the eye. For example, if the CFPB’s funding crosses the line, what about the Federal Reserve and the Federal Deposit Insurance Corporation as counsel argued before the Court?  Rulings of this kind really get into the inside baseball or sausage making of our governance in such a way that if we really play the rules by the book, we may end up doing some damage to the game itself.

In the meantime, he says it raises doubt about all sorts of other rules that the bureau has in place, because at least in the region of the 5th circuit – Texas, Louisiana, and Mississippi – other CFPB rules could be challenged with similar lawsuits.

“There’s going to be a lot of confusion about whether or not rules associated with mortgage loans, debt collection, credit cards, are still even viable rules anymore down in the Fifth Circuit.”

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If the ruling ultimately stands it could mean the bureau would need to get an annual budget approved by Congress, which Peterson says would make it vulnerable to, “banks, payday lenders, and debt collection agencies who are incredibly effective at lobbying Congress to weaken consumer protections.”

The future consequences of this decision remain unclear. Because they are not directly funded by Congress, will Medicare and Social Security be in danger? This is what happens when you pay attention to the man behind the curtain — stuff stops making sense.

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Appeals Court Says Financial Watchdog Agency CFPB’s Structure Is Unconstitutional [NPR]

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Chris Williams became a social media manager and assistant editor for Above the Law in June 2021. Prior to joining the staff, he moonlighted as a minor Memelord™ in the Facebook group Law School Memes for Edgy T14s.  He endured Missouri long enough to graduate from Washington University in St. Louis School of Law. He is a former boatbuilder who cannot swim, a published author on critical race theory, philosophy, and humor, and has a love for cycling that occasionally annoys his peers. You can reach him by email at [email protected] and by tweet at @WritesForRent.

Topics

5th Circuit, Congress, Consumer Financial Protection Bureau, Power of the Purse