Adam Levitin has recently warned that if the funding for the Consumer Financial Protection Bureau is to be considered unconstitutional, as a panel of the United States Court of Appeals for the Fifth Circuit
Whether the Fifth Circuit got it right, and how much chaos would actually result, is open for debate. What is clear, however, is that fear of possible effects on financial regulation should not influence the courts to stay their hand if in fact the CFPB is unconstitutional. The greater danger by far is to tolerate violations of the Constitution.
Allowing an unconstitutional structure to persist for fear of chaos would not strengthen our constitutional order, but rather would encourage Congress to create agencies free from rules that the constitutional system requires and then allow them to burrow deeply enough into the economy that the cure would be seen as worse than the disease. Such a precedent must not be set.
The CFPB was designed to be uniquely insulated from electoral politics. Most notably, the agency was to have a single director, who was only removable for cause, and a direct source of funding from the Federal Reserve, without any need for Congress to allocate funds or approve their use. Agency proponents hoped that this insulation would protect the CFPB from pressure by elected officials who were lobbied by industry.
There is just one problem: accountability to elected officials is a core component of our constitutional system of government. Otherwise, the people, whose primary act of self-government is electing those same officials, would lack meaningful control over those who govern them. This is unacceptable.
Over the past few years, the courts have taken a skeptical look at the CFPB. First, the Supreme Court
The panel notes that the appropriations clause is not a mere formality. Rather, it was meant to be an important check on tyranny. The panel argues that the clause strengthens the separation of powers, one of our government's most important structural safeguards for personal liberty, by preventing the executive from spending money from the Treasury without Congress's consent and preventing Congress from abdicating that responsibility.
Whether the Fifth Circuit is correct in its constitutional analysis can be debated, as Prof. Levitin suggested. The judicial system, either the full Fifth Circuit or the Supreme Court, should do its best to reach the result on that question. Less persuasive however is an appeal to protect the CFPB because of other agencies with similar funding or fear of market disruption.
As Prof. Levitin notes, many financial regulators, including the Federal Reserve, OCC, FHFA and FDIC, are funded by means other than congressional appropriations. The Fifth Circuit panel sought to distinguish the CFPB from these agencies because of the scope and breadth of the CFPB's power. Prof. Levitin disputes that the CFPB is more powerful than the Federal Reserve. This may be true, but if it is, it could just as easily damn the Federal Reserve's funding as save the CFPB's.
Congress cannot make the unconstitutional constitutional through repetition. While the constitutionality of the funding of FDIC, OCC, Federal Reserve, and so forth are not at issue in this case, they may also merit scrutiny in the future if the conclusion of the Fifth Circuit is upheld.
Likewise, concerns about "chaos" should not prevent courts from performing their core function — upholding the United States Constitution. If the CFPB is unconstitutional but the courts abdicate their responsibility to rule accordingly out of fear of roiling the markets, this causes a number of issues. The courts would, in effect, allow Congress to skirt its obligation to abide by the Constitution and teach agency heads that if you make your agency important enough (not good or right, just important), the rules won't apply. Such an outcome would not only harm the constitutional order, but the courts themselves, since it would show they are willing to blink if the stakes are too high.
If applying the Constitution to the CFPB would result in chaos, the blame lies with the Congress that created it and Congress could address the problems through appropriate (and constitutional) legislation. This disciplining of Congress would help it better serve its essential role and increase democratic accountability for both administrative agencies and elected officials. That is how the system is supposed to work.
In fact, Congress could be working on mitigating the risk of chaos right now by, for example, passing laws to address with specificity areas previously covered by CFPB regulation. Doing so would not completely remove the impact of a ruling, especially for retrospective enforcement actions, but people avoiding punishment because the government acted unconstitutionally is common and necessary to have meaningful limitations on government action. Congress could also move the CFPB (and other agencies) onto appropriations.
The original design of the CFPB was unconstitutional, in its leadership and potentially in its funding. Congress is to blame for this, and Congress can fix it. If Congress instead chooses to lambast the courts and ends up facing a crisis, it will have no one to blame but itself. The courts need to do their duty.
