Getting Beyond the Consumer Finance Protection Bureau

The next stop in the debate is the need for reform of the Federal Reserve itself — and our system of fiat money.

Lawrence Jackson via Wikimedia Commons
President Obama, center, announces the nomination of Richard Cordray, right, as the first director of the Consumer Financial Protection Bureau in 2011. Lawrence Jackson via Wikimedia Commons

The way to view the Supreme Court’s decision in favor of the Bureau of Consumer Financial Protection is that it’s yet another reason for Congress to begin a strategic review of the Federal Reserve itself. It would have been nice had the court ruled that the way the CFPB is funded violates the appropriations power in the Congress. Then again, too, it was Congress itself that, in no small error, created the blasted bureau in the first place. 

In any event, it’s been a decade since we — and congressional visionaries like Representative Kevin Brady — began calling for a centennial review of the Federal Reserve. It was created in 1914, and the value of the currency it issues has, in terms of gold and despite pledges made at the Fed’s founding, been declining ever since. As depicted in the chart below, the dollar has lost more than 98 percent of its value since the Fed’s founding.

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That’s merely context. The value of the dollar wasn’t an issue in this case, per se. What concerned us about the CFPB is the end-run around the appropriations clause and the absence of the Congress in the process of its funding. It has struck us as a delegation of Congressional powers far in excess of what any of the Founders would have approved, a point that was not missed by the two dissenters in the case.  

By seven to two, though, the Nine today reprieved the CFPB. The case arose over a bureau regulation that limits how lenders can recover money from delinquent borrowers. The lenders questioned whether the bureau’s unusual funding mechanism — an annual allotment supplied by the Fed — meant that the agency was unaccountable to Congress, and even unconstitutional. 

Not so, Justice Clarence Thomas says in his opinion for the majority. Even though the agency is not funded by the typical annual “appropriation” that the Constitution ordains for federal spending, he contends the bureau’s “funding mechanism fits comfortably with the First Congress’ appropriations practice.” The Post Office, he notes, originally had “a similarly open-ended funding scheme” that used postage revenue to cover its expenses.

“The Framers would be shocked, even horrified, by this scheme,” Justice Alito says in his dissent, joined by Justice Neil Gorsuch. The bureau’s “novel” funding process, he contends, allows it to “bankroll its own agenda without any congressional control or oversight.” The only limit that Congress placed on the CFPB’s annual spending, he notes, is the cap of “12% of the Federal Reserve System’s total operating expenses.”

That, Justice Alito says, “is not what the Appropriations Clause was understood to mean when it was adopted.” Congress’s “power over the purse,” he avers, is meant “to ensure that the people’s elected representatives monitor and control the expenditure of public funds and the projects they finance.” This power over spending, Justice Alito adds, “imposes on Congress an important duty that it cannot sign away.”

It’s hard to avoid the logic of Justice Alito’s conclusion. The same premise applies to the other powers of Congress that have been delegated to executive agencies. Especially the monetary powers. All that are granted in the Constitution are granted to the Congress. They include the power to tax, to  “regulate commerce,” to “borrow money on the credit of the United States,” to “coin money, regulate the value thereof, and of foreign coin.”

The Framers gave this authority to the Congress knowing that the legislature was the most accountable of the branches. So if Congress erred by delegating its spending power to the CFPB, as Justice Alito suggests, it’s exponentially more grave a mistake to have given its authority over monetary policy to an unelected quasi-public body, the Federal Reserve. Today’s decision underscores the need for Congress, not the Judiciary, to rectify that error.

This is not going to happen while the Congress is controlled by the Democrats, even if inflation’s damage is non-partisan. Republican efforts that easily passed the House under Speaker Ryan died in the Senate Banking Committee. It’s going to take a Republican Congress and a Republican president to move to reform the Fed and the consumer finance bureau. The court’s default reminds us that legislation is the more democratic way to protect our principles.

Correction: The Consumer Financial Protection Bureau is the name of the agency okayed by the Supreme Court Thursday. The name was misstated in the headline of the bulldog.

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