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CFPB’s constitutionality remains a contentious issue

The Consumer Financial Protection Bureau established by Dodd-Frank continues to face harsh criticism from individuals challenging the agency’s creation and operation as unconstitutional.

In a move that elicited fierce debate regarding its constitutionality, President Obama used his power of recess appointment to install Richard Cordray as the CFPB’s director. Additionally, the president appoints a CFPB director for a five-year term, though the director could stay on indefinitely if a successor is not found. The director can also be removed from the position but not for reasons related to policy.

The CFPB is funded directly by the Federal Reserve, yet another area of contention, because the agency’s director determines the amount of funding. Critics maintain that the position allows for unchecked spending, as the CFPB budget is not subject to congressional appropriations.

The CFPB’s 2012 budget estimated that $130 million would be used for “other services,” the extent of the agency’s budget explanation, the Billings Gazette reports.

C. Boyden Gray and Adam J. White, lawyers representing one community bank’s challenge to the constitutionality of the CFPB’s creation and operation, said that the agency’s ability to write laws based on case-by-case enforcement and to rewrite statutes based on “exception authority” would cause an increase in compliance costs.

“The absence of clear, simple, up-front rules will force banks to hire ever more lawyers and regulatory compliance officers to keep up with changing laws—an outcome that inherently favors big banks over smaller ones,”  Gray and White said, according to the Billings Gazette.

Gray and White said that Dodd-Frank gives “effectively unbounded power” to the agency and “couples that power with provisions insulating” the CFPB against the government’s system of checks and balances.

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