A little-known federal government agency, the Consumer Financial Protection Bureau, imposes enormous costs on consumers and financial service providers through costly and unwarranted command-and-control regulation.
What’s more, the Consumer Financial Protection Bureau runs afoul of the constitutionally mandated separation of powers. Thus, both economic and constitutional concerns indicate that it is time for Congress to abolish the Consumer Financial Protection Bureau and reallocate those of its functions that merit being retained to other existing federal regulatory agencies.
>>> To Read the Full Report by Alden Abbott: Time to Eliminate the Financial Protection Bureau
Creation of the Consumer Financial Protection Bureau was a key feature of the Dodd-Frank Act of 2010, which, as Heritage scholars have explained, represents a failed attempt to address the causes of the 2008 financial crisis (in fact, it makes future financial crises and bailouts more likely).
The Consumer Financial Protection Bureau is given broad authority, through rulemaking and enforcement actions, “to implement and, where applicable, enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive.”
Despite these lofty goals, the Consumer Financial Protection Bureau has imposed high costs on the finance sector and consumers while reducing the choice of products and services—and thus competition and innovation within the consumer financial marketplace.
The Consumer Financial Protection Bureau is not only bad economics, it offends the U.S. Constitution.
In enacting Dodd-Frank, Congress went out of its way to shield the Consumer Financial Protection Bureau from the normal forms of congressional oversight that hold government agencies accountable to the people’s elected representatives. Dodd-Frank allows the agency to obtain the budget it desires directly from the Federal Reserve Board, free from congressional appropriations oversight and budgetary review. That means Congress cannot effectively question Consumer Financial Protection Bureau policies.
No Executive Oversight
Moreover, the Consumer Financial Protection Bureau is free from presidential oversight and from effective Federal Reserve Board management control. More than any other federal agency, it is a power unto itself, able to impose its regulatory will on individual Americans without political accountability.
At Odds With the Constitution
This is at odds with the importance the Framers of the Constitution placed on effective congressional and executive oversight to the legitimacy of government action.
Specifically, in Federalist 58, James Madison explained that the congressional “power of the purse may … be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure.”
Congress, however, cannot employ this “effectual weapon” with respect to the Consumer Financial Protection Bureau, since it does not appropriate funds for the agency and may not even review the bureau’s budget.
The Consumer Financial Protection Bureau has praised this freedom from accountability to Congress, stating that its “funding outside the congressional appropriations process” ensures its “full independence” from Congress.
And in Federalist 72, Alexander Hamilton explained that with respect to the execution of the laws, the people look to the president to guide the “assistants or deputies … subject to his superintendence.”
Hamilton added in Federalist 70 that absent a clear chain of command, the public cannot “determine on whom the blame or the punishment of a pernicious measure, or series of pernicious measures ought really to fall.”
For that reason, as James Madison explained to the First Congress, the Constitution sought to ensure that “those who are employed in the execution of the law will be in their proper situation, and the chain of dependence be preserved; the lowest officers, the middle grade, and the highest, will depend, as they ought, on the president, and the president on the community.”
The Consumer Financial Protection Bureau insulation from presidential control means that there is no “chain of dependence” linking the bureau to presidential oversight and no presidential “superintendence” of Consumer Financial Protection Bureau activities.
Despite the principled case for the Consumer Financial Protection Bureau’s unconstitutionality, however, lawsuits challenging it are time-consuming, uncertain, and of questionable utility in reining in the bureau. The federal courts have been reluctant to invoke constitutional “first principles” to second-guess congressional decisions regarding agency structure and broad delegations of authority. Accordingly, congressional action is needed.
Specifically, Congress should identify the consumer protections currently assigned to the bureau. Given the broad sweep of the Consumer Financial Protection Bureau’s authority and the harm it has imposed through its regulatory actions, some of those responsibilities merit being eliminated or, if not, substantially curtailed.
Congress should repeal all Consumer Financial Protection Bureau-related statutory provisions and restore the authority of more constitutionally accountable federal agencies—the Federal Trade Commission and the traditional federal financial institution regulators—over consumer protection with respect to financial services.
Congress should review existing federal financial services regulatory statutes with an eye to eliminating programs that are excessively burdensome and harmful to the American economy and consider ways to harmonize the application of financial institution regulatory standards.
Also, as Heritage Foundation scholars have recommended, Congress should consider enacting additional regulatory reform legislation, such as requiring congressional approval of new major regulations issued by agencies (including financial services regulators) and subjecting “independent” agencies (including financial services agencies) to executive branch regulatory review.
Carried out appropriately, this legislative reform agenda would inure to the benefit of the American economy and further the cause of sound, constitutionally accountable government.