Supreme Court must dismiss unconstitutional CFPB regulators.
The Rise of the Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB) emerged like a mutant monster from the politically radioactive rubble of the 2008 financial crisis. Conceived by then-academic Elizabeth Warren, D-Mass., and created by the Dodd-Frank Act, Congress gave the agency largely unlimited authority over much of the financial sector. It has often ruled arbitrarily as a de facto legislative body, shielded by design from traditional political checks and accountability measures.
Challenging the CFPB’s Constitutionality
The CFPB is once again before the Supreme Court. Two industry groups have objected to a 2017 rule that regulates payday lenders. They are challenging the very foundation of the agency’s constitutionality.
CFPB Appropriates Its Own Funds
Any textualist or originalist should view the CFPB’s funding scheme as anti-constitutional. Per statute, it effectively funds itself by drawing monies from the Federal Reserve, another agency Congress insulated from ordinary democratic accountability.
Republicanism vs. Progressivism
The controversy over the CFPB dredges up an old debate. The classical liberal, Anglo-American political doctrine is set against the quintessentially continental and anti-founding tendencies of the Progressive Era of American politics.
The Power of the Purse in England
In the British political system, from which the founders borrowed much, Parliament regularly used its fiscal powers to exert control over the king. Indeed, much of the political pressure that exploded into the English Civil War resulted from Parliament’s unwillingness to provide revenue to King Charles I, whom many accused of tyranny.
CFPB and the Progressive Era
As argued in Reason earlier this year, “Democrats constructed the CFPB as a quintessentially progressive regulatory institution: A partnership of government and big business, helmed by putatively disinterested and de facto unaccountable bureaucrats.” Its structure conforms closely to the philosophies of the Progressive Era’s largest-looming intellectuals, including former President Woodrow Wilson.
Restoring ‘Divided and Balanced’ Government
Madison and his fellow founders would have objected strongly. “An elective despotism was not the government we fought for,” the Virginian wrote in Federalist No. 48, “but one which should not only be founded on free principles, but in which the powers of government should be so divided and balanced…that no one could transcend their legal limits, without being effectually checked and restrained by the others.”
What are the arguments for and against the CFPB’s regulations and their impact on financial innovation and consumer protection
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One of the key controversies surrounding the CFPB is its ability to appropriate funds without Congressional approval. Under the Dodd-Frank Act, the agency is authorized to draw funds from the Federal Reserve System without any oversight from Congress. Critics argue that this lack of accountability undermines the democratic process and gives the CFPB undue power over the financial industry. The CFPB has also been criticized for its opaque funding structure. While the agency is funded primarily by the Federal Reserve System, it also receives additional funding from the Federal Reserve’s earnings. This arrangement has raised concerns about the potential for conflicts of interest and undue influence from the Federal Reserve. Critics argue that the CFPB should be subject to the same funding process as other government agencies, ensuring greater transparency and accountability. Another key issue surrounding the CFPB is its impact on financial innovation. Critics argue that the agency’s heavy regulation stifles innovation and hampers economic growth. The CFPB’s rules and regulations place significant burdens on financial institutions, making it more difficult for them to develop and offer new products and services. Proponents of the CFPB argue that its regulations are necessary to protect consumers from predatory practices and promote financial stability. They argue that without the agency’s oversight, consumers would be vulnerable to unfair and deceptive practices by financial institutions. The CFPB’s rules aim to ensure that consumers have access to transparent and fair financial products and services. The CFPB faces several challenges and calls for reform. Critics argue that the agency’s unlimited authority and lack of oversight make it susceptible to abuse and political bias. They argue that the agency’s structure should be reformed to ensure greater transparency and accountability. There have been calls to subject the CFPB to the appropriations process, giving Congress more control over its funding. This would help address concerns about the agency’s ability to draw funds without oversight. Additionally, some argue for greater checks and balances on the agency’s rulemaking, to prevent it from imposing regulations that may be arbitrary or excessive. Suggestions for reform include requiring the agency to conduct rigorous cost-benefit analysis before issuing new regulations. The rise of the CFPB has been met with both support and criticism. While the agency has sought to protect consumers from predatory practices, its broad authority and lack of accountability have raised concerns about its impact on the financial industry and the democratic process. As the agency continues to face legal challenges and calls for reform, the future of the CFPB remains uncertain.Regulation vs. Innovation
Future Challenges and Reforms
Conclusion
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