The Unconstitutional Mr. Cordray

WSJ 10/12/2016

The most powerful un-elected man in Washington finally has a boss. We’re referring to Richard Cordray, who runs the Consumer Financial Protection Bureau (CFPB) and whose job was ruled “unconstitutionally structured” by a federal appeals court on Tuesday. Mr. Cordray will now have to report to President Obama, who can fire him at his pleasure.

This is a triumph for democratic accountability and thus individual liberty as envisioned by America’s founders. Writing for a three-judge panel of the D.C. Circuit Court of Appeals, Judge Brett Kavanaugh noted that under Article II of the Constitution “the President alone is responsible for exercising the executive power.” The President, unlike the many bureaucrats he oversees, must answer to voters.

The problem is that under the 2010 Dodd-Frank law that created the consumer bureau, the director serves a five-year term, and the President can only fire the director for cause. While the Supreme Court has (unfortunately) blessed so-called independent agencies for decades, such agencies have traditionally been controlled by bipartisan commissions as a check on the power of any single person.

Because one man runs the powerful consumer bureau, the court observed that he “enjoys more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the President.” He also “possesses enormous power over American business, American consumers, and the overall U.S. economy.”

Mr. Cordray can issue new rules, determine how and when to enforce them, decide against whom they will be enforced, and dictate what sanctions and penalties to impose. As the appeals court points out, even judges can’t fully serve as a check on such broad powers. That’s because “judicial review serves as a constraint on illegal actions, but not on discretionary decisions within legal boundaries.”

This sweeping quasi-judicial, quasi-legislative authority in one man whom the President cannot fire is a clear violation of the Constitution’s separation of powers, and “a gross departure from settled historical practice,” said the court.

The case at hand, involving a mortgage company called PHH, demonstrated that Mr. Cordray abused his power exactly as the founders would have expected given his unaccountable authority. Though PHH followed the guidelines issued by another federal agency, Mr. Cordray’s consumer bureau created a novel interpretation of the law to find fault with PHH and claimed the relevant statute of limitations didn’t apply. An administrative law judge set a disgorgement penalty of $6.4 million, but Mr. Cordray raised it to $109 million on his own whim. It’s good to be the king.

The three-judge panel was unanimous in finding that the bureau was wrong on the law, wrong on the penalty, wrong in claiming the statute of limitations didn’t apply, and unfair in retroactively applying a new interpretation of law without fair notice. “The CFPB’s order violated bedrock principles of due process,” wrote the court.

Given all this, Judge Karen Henderson thought it unnecessary to proceed to the constitutional questions. But Americans who cherish liberty will appreciate that Judge Kavanaugh and Judge Ray Randolph proceeded to the logical conclusion: “In order to maintain control over the exercise of executive power and take care that the laws are faithfully executed, the President must be able to supervise and direct” subordinate executive officers of government.

Kudos to Ted Olson, who argued the case, as well as Boyden Gray and Adam White, who have been diligent in pointing out Dodd-Frank’s constitutional flaws. Some of us hoped the court would find the entire CFPB unconstitutional, but the ruling highlights again what a rush job Dodd-Frank was. Then professor and now Senator Elizabeth Warren proposed the consumer agency as a multi-member commission. So did the White House. But late in the game the bureau’s director became an unconstitutional authority unto himself. Ms. Warren sniffed in reaction to the ruling that it is merely a “technical tweak” that would be overturned on appeal, which shows how much contempt for the Constitution progressive elites now have.

If Congress won’t kill the CFPB, then it should at least make it conform to the normal constraints on independent federal agencies. And if Donald Trump wins, he should fire Mr. Cordray immediately.


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