By Willy Staley  Tue Jun 26, 2012

Will CFPB Get Mandate Treatment? Opponents Challenge Constitutionality

Beatrice Murch/flickr source

On Monday we were spared the Supreme Court’s ruling on the constitutionality of the mandate built into President Obama’s signature health-care reform bill, but we know exactly what we’re going to see from all but one justice. A Bloomberg poll of 21 constitutional law professors found that most think Kennedy is going to vote against the mandate, too, thereby removing the linchpin from the legislation, but 19 of 21 of those professors do not believe the mandate to be unconstitutional. Looking at this apparent disconnect, many believe Republicans have strategically cornered the one branch of our federal government that is least accountable to voters, in a move to codify its political beliefs into law; others might point out that it has always been this way — but our politics haven’t always been so stratified.

A recently-filed lawsuit challenges the constitutionality of the Consumer Financial Protection Bureau also calls into question whether the agency, like the health-care mandate, is an abuse of federal power. This seems surprising for something so comparatively tame.

A lawsuit filed in The United States District Court for the District of Columbia, which is just two appeals away from the Supreme Court, alleges that the CFPB, created by the Dodd-Frank legislation, is unconstitutional because it compromises the separation of powers built into our Constitution. It also claims that Obama’s appointment of Richard Cordray was illegal because it did not actually take place during a Congressional recess (which is both true and not true; Congressional Republicans were “gaveling in” for mere minutes last winter, holding pro forma sessions during what should have been their recess, just to prevent the President from making recess appointments.)

The suit was filed jointly by State National Bank of Big Spring, Texas, The Competitive Enterprise Institute — which is exactly what it sounds like: a conservative think tank — and The 60 Plus Association, which is a “conservative alternative to the AARP” — an anti-tax organization for seniors, which, when you think about it, is an excellent way to describe the Tea Party.

In an op-ed in the Wall Street Journal — where else? — Jim Purcell, CEO of State National Bank of Big Spring, and his lead counsel, C. Boyden Gray (a former member of George H. W. Bush’s White House), lay out their case for Dodd-Frank’s unconstitutionality:

Dodd-Frank created both the Financial Stability Oversight Council and the Consumer Financial Protection Bureau, giving each agency effectively unlimited power. The FSOC can declare a financial firm “systemically important”—that is, too big to fail—based on “any” “risk-related factors” that it “deems appropriate.” And the CFPB can punish even responsible lenders who in good faith offer loans that the bureau later deems to be “unfair,” “deceptive” or “abusive.”

Those open-ended standards place no limits on the regulators’ power…Ordinarily, when regulators wield broad power, their discretion is still limited by checks and balances…but Dodd-Frank does not honor checks and balances. It eliminates them.

The notion that the CFPB would use its powers to punish responsible lenders seems prima facie absurd and makes sense only in a universe where government enacts regulations in order to harm businesses, not to protect its citizens — i.e., the scary universe that the fringe right believes in, or at least pretends to believe in, where any regulation on business is but a hop, skip and a jump from forced collectivization and bread shortages at the worst, and stagflation and lines for gas at best.

A recent op-ed from American Banker by Robert Johnson and Ken Rees provides a real-world counterweight to this far-right fanaticism. The two were skeptical of the CFPB, but found the agency to be smart, professional, and interested in promoting access to credit: not in shutting down political enemies and the like:

The CFPB is a very new organization, but it’s clear that Director Richard Cordray, Deputy Director Raj Date, and their teams are trying to strike a balance between eradicating unfair, deceptive, and abusive practices (something all responsible providers can and should get behind) and supporting the legitimate extension of credit to millions of Americans with economically viable rates.

That the CFPB is considering using its powers to amend the part of Dodd-Frank that prevents stay-at-home spouses from getting access to credit may be evidence of its pro-lending agenda. From everything we have seen, the CFPB is not a vindictive organization, but rather one that seeks to protect consumers from deceptive business practices that can plague the financial industry. Rather than seeking to stifle lending itself, as the complainants’ op-ed alleges the CFPB may do, it seems the newly minted agency is primarily concerned with listening to consumers about unfair lending practices. The CFPB and the Financial Stability Oversight Council — also a target of the lawsuit — are but more examples of the silo-busting interagency partnerships the administration has been creating in a perhaps-foolhardy attempt to make the federal government more responsive and smarter.

It’s not that the Obama administration does not act extra-legally and unconstitutionally, but when it does, it typically does so with drones — not agencies.

That the language of the lawsuit is a bit overblown is entirely beside the point: the lawsuit is concerned less with the spirit of our founding document or actual business concerns as it is with using the courts’ now-apparent political leanings to circumvent and obviate the legislative branch’s will. (Or perhaps it is nothing more than an effort to raise money and publicity for the Competitive Enterprise Institute and The 60 Plus Association.) Come Thursday, such a legal strategy will likely have successfully overturned President Obama’s first signature piece of legislation, whether it will work again to overturn his second signature piece is now in the hands of the courts.

Subscribe to our Newsletters

 

Add Your 2 Cents