by Mitch Kokai
Senior Political Analyst, John Locke Foundation
On October 11, 2016, in PHH Corp. v. Consumer Financial Protection Bureau, a three-judge panel of the D.C. Circuit Court of Appeals found the CFPB’s structure unconstitutional and “fixed” it by empowering the president to remove the agency’s director at will. It sounds dull, but this is a tragic story. …
… [Elizabeth] Warren grew famous criticizing big banks in congressional hearings. She lobbied Democrats to include her agency in their Wall Street–reform legislation, arguing that effective enforcement of consumer-protection laws required a regulator independent from politicians beholden to the financial industry. The Democrats had a better idea: They would make her agency independent from Republicans.
Circumventing the Constitution took two steps. First, Democrats inserted a few clever workarounds into the Dodd-Frank Act, which created the CFPB on July 21, 2010. Commissions such as the one Warren first proposed are ostensibly bipartisan, so a president-appointed director would lead the new agency. Since there might be a Republican president one day, the director would be practically irremovable after Senate confirmation to a five-year term that could extend indefinitely until the next director’s confirmation. To prevent future Republican-led Congresses from cutting the bureau’s budget, funding would be guaranteed through Federal Reserve profits rather than taxpayer dollars.
Next, the enlarged new agency would be staffed with Democrats, top to bottom. There would not be a Republican director nominee for at least five years, and if one was ever confirmed, entrenched left-wing managers could undermine “attempts to weaken consumer protection.” The plan wasn’t perfect, but it was pretty good.
Warren, who had hoped to be the CFPB’s first director, led the one-year agency-building process. She chose loyal Democrats to be her senior deputies; they hired like-minded middle managers, who in turn screened lower-level job seekers. It was too risky for interviewers to discuss politics, so mistakes were possible. I was one of them.