Former US Congressmen Dodd And Frank Defend Post-Financial Crisis Agency

May 17, 2023
Authors of the post-financial crisis Dodd-Frank Act speak up in favour of the Consumer Financial Protection Bureau in a constitutional debate which puts in jeopardy 12 years of regulatory actions taken by the agency.

Authors of the post-financial crisis Dodd-Frank Act speak up in favour of the Consumer Financial Protection Bureau (CFPB) in a constitutional debate which puts in jeopardy 12 years of regulatory actions taken by the agency.

“Congress chose to fund the CFPB with a steady but capped appropriation to avoid the regulatory failings that contributed to the 2008 financial crisis,” the former legislators say.

Christopher Dodd and Barney Frank are among those 144 current and former members of Congress who filed an amicus brief to the Supreme Court in support of the CFPB, 12 years after the agency was created under the Dodd-Frank Act.

Other signatories include Democratic leader Chuck Schumer, Democratic whip Richard Durbin, former House speaker Nancy Pelosi and top Democrats of the Senate Banking Committee and the House Financial Services Committee.

Last October, the Fifth Circuit quashed one of the CFPB’s rules after finding that the agency’s funding structure was unconstitutional and the rule was, therefore, the product of an unconstitutional scheme.

Unlike many federal regulators that are funded with periodic congressional appropriations, the CFPB receives funding directly from the Federal Reserve. Such funding can be retrieved upon request by the bureau but never exceeding 12 percent of the Fed’s operating expenses.

Following the judgment, numerous court cases initiated by the CFPB have been put on hold in the states of Texas, Louisiana and Mississippi where the Fifth Circuit’s jurisdiction applies.

The decision was a victory for many Republicans who see the CFPB as an unconstitutional and unaccountable agency and who swore to curb what they call a serious regulatory overreach.

But Democratic legislators now warn that the CFPB plays a critical role “in Congress’s plan to prevent debilitating national crises like the financial crisis of 2008”.

“When deciding how to fund the newly created bureau, Congress extensively examined the causes of the 2008 financial crisis and determined that the lack of steady funding for key financial regulatory agencies was a contributing factor,” the Democrats wrote.

“Armed with its assessment of what went wrong in the financial crisis, Congress determined that to be effective, the CFPB needed independence from unpredictable annual funding cycles.”

Staying outside the Congressional appropriations process is “absolutely essential to the independent operations of any financial regulator”, they argue.

The document was signed by 98 House representatives and 36 senators, signalling significant support from Congress. But even if the lawmakers can convince the Supreme Court that the CFPB’s funding structure is in line with the congressional intent, the administration must also show that it does not go counter to the Constitution of the United States.

The document argues that the funding structure of the CFPB is actually not as unique as judges wrote and only a few of the federal financial regulators are subject to annual appropriations or periodic reauthorisation by Congress.

“As the United States explains, the Fifth Circuit’s decision wrongly questions a funding model that has been used since the early Republic, which now applies to the [Office of the Comptroller of the Currency] and a host of other crucial federal programmes,” according to the brief.

The legislators’ plea comes amid widespread support and more than a dozen amicus briefs filed on the side of the CFPB by a wide variety of groups, including consumer advocates, scholars, lawyers, NGOs and attorneys general of 40 states.

No amicus brief has been filed in support of the Fifth Circuit decision, according to the case register.

The court will hear the case in its next term starting in October, which means that a final decision will likely be handed down in 2024 at the earliest.

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