“No more kings,” said “Schoolhouse Rock.” But one bureaucrat can come pretty close to wielding royal power.
The director of the Consumer Financial Protection Bureau enforces 19 laws dealing with every aspect of your finances — from your credit card to your student loans. Worse, the CFPB director enforces these laws as his whim dictates. Although the director’s decisions can cripple the American economy, the director’s office shields him from suffering any of the consequences himself. He answers to no one.
When a congresswoman demanded to know why the bureau spent over 200 million dollars of taxpayer money to renovate its office with a two-story waterfall in the lobby, the now-former director responded, “Why does that matter to you?”
You might think that the Constitution says a thing or two about placing all that power in the hands of one unaccountable bureaucrat. Yet the second-highest court in the land recently upheld the director’s position. Now it’s up to the Supreme Court to restore our Constitution’s system of checks and balances.
The Founders knew that checks and balances were needed not just for their own sake, but to protect liberty. They designed a system in which the people may hold bureaucrats accountable, because they well understood that even a consumer protection bureau may fail to protect the consumer.
Consider the CFPB’s rule on short-term lending. Short-term payday loans provide a lifeline for needy people to buy necessities like clothing and food while they await their next paycheck. The loans require no credit check and no collateral, and provide a means for lower-income families to join the financial mainstream. Yet the CFPB finds these loans distasteful, and enacted a 1,690-page-long rule that threatened to put 75 percent of short-term lenders out of business.
Imagine the consequences, in the financial sector and elsewhere, if one high-ranking bureaucrat could put three-quarters of an entire industry out of business just because he finds it distasteful. A bureaucrat who enjoys dining at Michelin-starred restaurants might enact policies that put the McDonalds and Taco Bells of the world out of business. Another bureaucrat might stop airlines from offering you economy seats, only because he prefers the luxury of first-class. One bureaucrat’s personal preferences shouldn’t dictate the choices for the rest of us.
Another example involves arbitration, a process that allows people to resolve contractual disputes in a private forum. The CFPB recently enacted a rule that restricts the ability of companies to put arbitration clauses in their contracts. Yet companies and consumers agree to arbitration because it is usually less expensive than resolving a dispute in court. The use of arbitration is one reason you can purchase goods and services at a lower price than you could otherwise.
Sure, consumers who want to pay a premium to have their contractual disputes heard by a judge could demand just that. But the CFPB’s arbitration rule is another example of the bureau “protecting” consumers from themselves; it should be protecting consumers from fraudsters.
But the main problem is this: No matter what the CFPB does, there is no recourse for those affected. The president is basically prohibited from removing the CFPB director from his position. Indeed, if the director and the president disagree on the best approach to consumer financial protection law, it’s the director’s view that prevails. And those disagreements happen more than you might think. Because the director serves a five-year term, it is quite possible for the director to come from a political party that rivals the president’s. Under those circumstances, we might expect the director to carry out the president’s agenda with sloth, if not sabotage. What’s the president to do? As Harry Truman quipped, “I thought I was the president, but when it comes to these bureaucrats, I can’t do a damn thing.”
How about Congress? Although Congress generally oversees agency action by using the power of the purse, the CFPB doesn’t need Congress’ money. It can take hundreds of millions of dollars each year from the Federal Reserve without any congressional approval. So Congress can ask the director hundreds of questions and then criticize him for not answering them. But it can’t do much else.
That leaves the judiciary. The Supreme Court may soon get the chance to hear this case, and it should take it. For the sake of expediency and efficiency, Congress placed a tremendous amount of power in the hands of the bureau director. But, under the Constitution, the accumulation of powers in one person’s hands is the very definition of tyranny.
There is reason for optimism. The Supreme Court recently held that Congress cannot upend the separation-of-powers for the sake of convenience and efficiency. Let’s hope the court reiterates that principle next term.
Wen Fa is an attorney who litigates cases involving constitutional law and separation of powers.
