March 21, 2017
House Financial Services Hearing: The Bureau of Consumer Financial Protection’s Unconstitutional
Design
The House Financial Services Subcommittee on Oversight and Investigations held a hearing today to
examine whether the CFPB’s structure violates the Constitution, and to determine whether structural
changes to the Bureau would resolve any “constitutional infirmities.”
Four witnesses offered testimony:
•
The Honorable Theodore Olson, Partner, Gibson, Dunn & Crutcher LLP
•
Professor Saikrishna Prakash, James Monroe Distinguished Professor, University of Virginia
School of Law
•
Mr. Adam White, Research Fellow, Hoover Institution
•
Ms. Brianne Gorod, Chief Counsel, Constitution Accountability Cen
Opening Statements
Subcommittee Chairman Ann Wagner (R-MO) called the hearing to order, noting that for the past 8
years, the American people have “grown complacent” with Washington’s unchecked power.
Healthcare, energy, and financial services have demonstrated Washington’s overreach into people’s
lives. This hearing seeks to examine the checks and balances of our federal government and “bring
accountability back to Washington for we the people.” The CFPB removes choices and makes access to
financial products more difficult under the guise of consumer protection. The superseding
independence of the Bureau has demonstrated how a lack of checks and balances can lead to abuse;
Wagner noted that the CFPB director is the most powerful government official other than the president.
Without the ability of Congress and the executive branch to carry out proper oversight, the CFPB has
become “arrogant in its cloak of unaccountability.” Wagner stated that the CFPB is unaccountable to
Congress, taking its funding stream from the Federal Reserve with no review process. As a result, the
CFPB has repeatedly ignored oversight requests from this Committee, including for subpoenaed records.
In addition, the CFPB is unaccountable to the President and the Judiciary, with Dodd-Frank mandating
that courts give extra deference to CFPB statutory interpretations. The hearing will examine the funding
structure, and look for ways that restructuring the agency might make it more accountable. Finally, the
hearing will examine the President’s authority to remove the CFPB director.
Subcommittee Ranking Member Al Green (D-TX) followed these comments, and apologized to the
American people for the shameful and disrespectful abuse of power the Republicans have committed.
Green stated that the Republicans have taken one side in mortgage litigation that has ripped off
American people, taking one side by allowing witness Mr. Olson to present testimony that would benefit
his client. He wondered whether this is a “special Congressional fix” for Mr. Olson’s client. Green is
confident that Mr. Olson will maintain that the views he will express will “not necessarily” represent the
views of his client. However, citing Olson’s written testimony, Green noted quotations and commentary
from the client’s case, the same client “accused of ripping off the American people.” Green discussed
previous investigations of Mr. Olson for accusations of lying to Congress. Olson discusses this case,
Morrison vs. Olson, numerous times during his written testimony, Green notes. The Congress of the
United States should not be in the business of promoting litigation, and such behavior is disrespectful to
the Judiciary. Congress ought to be in the business of deciding whether or not it will move forward with
legislation. It is obvious that Mr. Olson’s client will benefit from today’s testimony, because one side
(Republicans) will be in favor of it.
Subcommittee Vice Chairman Scott Tipton (R-CO) noted that the CFPB’s negative repercussions must
be discussed, and reviewed how the design of the agency allows it to be wholly unaccountable to
Congress. CFPB has finalized just over 50 rules, with over half of these rules creating $2.8 billion in
costs. These rules were created without cost-benefit analyses; the CFPB has expanded its regulatory net
to capture businesses outside of its jurisdiction. Scott advocated steering the CFPB back to its mandated
role.
Witness Statements
The Honorable Theodore Olson noted that the views expressed are not necessarily those of his client or
firm. He observed how the framers structured a government of separated powers with checks and
balances, delivering to the country a prosperous, strong, and free society. Though it may be tempting to
create new government structures, we abandon the carefully structured government of our constitution
“at our peril.” The Constitution’s separation of power principles are a Constitutional imperative, not a
“matter of aesthetics.” The government’s powers are divided among legislative, executive, and judicial,
separated by branches of government. Olson continued to explain framer debates surrounding
distribution of power, noting that from the founding, the Constitution requires the Executive to exert
power over subordinates by removing them. The Supreme Court has given exceptions to this,
particularly in agencies headed by multiple persons. The CFPB’s structure is the product of aggregating
some of the most democratically unaccountable and power centralizing features of the state. The
President was stripped of the power to faithfully execute the laws in these circumstances. Olson listed
the ways in which the CFPB is unaccountable, and noted that this lack of accountable has allowed it to
render decisions that are “sweeping and grand.”
UVA Law Professor Saikrishna Prakash listed the basic principles of the Constitution: the executive
power is vested in the President. Thus, the power to execute laws rests with the President. From the
beginning, this principle was understood—the first Congress created several departments, and
departments designed to help the President execute laws were his subordinates. The President has the
power to remove subordinates in his executive power. Prakash discussed the evolution of the “for
cause” restriction on the President’s removal power, noting that the courts have zig-zagged on this
decision from the Civil War to the New Deal. The Congress serving with Roosevelt decided that the
President did need cause to remove a subordinate, given that members of the Supreme Court were
concerned about the degree of power given to the Executive Branch. The Court later went out of its
way to strike down this statute, and Prakash argues that there are four votes on the court right now to
strike down Morrison vs. Humphries. Further, if the statute is constitutional, there is no logical stopping
point.
Mr. Adam White of the Hoover Institution stated that the CFPB’s structure is one of the most important
Constitutional issues today. For nearly a century, our administrative state was defined by structural
decisions made by Congress. Legislative precedents set during this period became the benchmark for
decades that followed. The Dodd-Frank Act radically changed this paradigm by creating new forms of
unaccountable structure. Future proposed independent agencies will be modeled on the CFPB, with
funding structures to match. The CFPB’s unconstitutionality has been self-evident from its creation, and
there have been numerous lawsuits challenging its constitutionality. The challenge in the PHH case is
just the latest. The CFPB’s lavish spending, haphazard rulemaking, and its “unapologetic defiance of
Congress” are all symptoms of the agency’s lack of accountability to the Congress and President. He
urged the Committee to focus on unaccountability from Congress. White cited Congress’ power of the
purse as its key force in preventing power from slipping through its fingers.
Ms. Brianne Gorod stated that the CFPB was created out of the devastating recession of 2008, caused in
part by a fragmented consumer protection regime that failed to protect consumers. The CFPB has been
incredibly successful in achieving its aims of protecting consumers and overseeing the financial sector.
Despite, or perhaps because of its success, the CFPB has been attacked. The CFPB’s leadership structure
is consistent with the text and history of the Constitution and Supreme Court precedent. Gorod
questioned whether the President should have unlimited removal power of all officers, and continued
that the framers gave Congress considerable flexibility in how to design the government. She cited
Supreme Court support for the same precedent governing the CFPB director, and argued that the singledirector is a distinction, not a difference. Further, a multi-person director’s board serving staggered
terms is, if anything, less accountable to the President. Gorod further argued that there is no
Constitutional prohibition against funding outside of the appropriations process. Though the Bureau
withdraws money from the Treasury, it is not funded by the Federal Treasury, rendering clauses
prohibiting Treasury withdrawals useless. Finally, Bureau opponents have argued that the CFPB is
unaccountable because its powers are “unlimited.” Rather, the Bureau’s powers are subject to an array
of requirements and procedural checks, and it shares regulatory authority with multiple other agencies.
General Questions
Subcommittee Chairman Ann Wagner (R-MO) asked Mr. Olson what the President could do to change
the CFPB’s structure. Olson argued that limitations in the statute are unconstitutional and strip the
President of his power to administer laws. The statute allows the agency to act without checks from the
Executive. Therefore, Olson believes that the President has the power to remove this individual in order
to administer the laws. Wagner noted opposition views that the push to allow the President to remove
officials at will is nothing but a partisan action. However, she cited arguments under the Clinton
administration echoing calls to prevent encroachment on the power of the Executive. Turning to Mr.
Prakash, she asked whether the CFPB director can be removed with the change of an administration,
quoting 2012 testimony from Barney Frank. Prakash agreed with this assertion. Finally, Mr. White
agreed that the President does not need to wait for the statute to be struck down before removing the
CFPB director.
Rep. Keith Ellison (D-MN) cited some of the CFPB’s achievements (stopping illegal kickbacks during
home sales being one). This kickback scheme lead to the lawsuit under question, and Ellison
characterized three of the witnesses today as defending a kickbacker. Ellison expressed concern about
falling homeownership rates, especially for Millennials and African Americans. If buyers do not pay in
cash, the need to be aware of the array of additional costs, mortgage insurance, and other resources;
homeowners rely on their realtors and other officials to guide them through the process. Unfortunately
rather than providing clear assistance, PHH engaged in kickbacks. The CFPB stepped in to stop this
illegal practice; Ellison cited RESPA as prohibiting financial benefits for referrals, but noted that this
prohibition has long been ignored. Ellison argued that when borrowers are overcharged, it becomes
more likely that they will default on their mortgage. Ellison does not want to see companies forced into
costly controlled affiliations in order to stay in business- title insurance and PMI companies should be
able to run their companies as they wish, without having to give kickbacks for referrals. This is the
business model CFPB was fighting for. Ellison stated that the hearing is about protecting deeply vested,
profitable industry, rather than the CFPB.
Subcommittee Vice Chair Scott Tipton (R-CO) asked whether the CFPB director is subject to review by
the Federal Reserve, Congressional Appropriations Committees, OMB, or the President. Mr. Olson
replied ‘no’ to all of these review powers. He continued that the framers vested Congress with the
power to create laws, the President to enforce them, and the Judiciary to adjudicate them. They felt
strongly that if all the consolidation of all of these powers is the definition of tyranny. The CFPB’s
structure allows the President no control whatsoever. Tipton noted a fundamental agreement that
checks and balances are essential in our system; the CFPB is completely out of control. Turning to the
President’s ability to remove the director with cause, he wondered whether the CFPB’s outside funding
raises additional concerns. Olson agreed, stating that the loss of funding power corresponds to a lost
oversight power. Every method Congress has created to dispose of authority through separation has
been aggregated at the CFPB, he continued. Tipton described regulatory burdens on small banks; Mr.
White provided first-hand experience with a small bank in West, Texas that struggled under DoddFrank’s burdensome requirements.
Rep. Emanuel Cleaver (D-MO) asked Mr. Olson whether he agrees that the Constitution of the United
States defines “who counts.” Olson replied that “ultimately, the people count,” and the Constitution
creates a system that separates powers and creates accountability. Cleaver quoted that “all men are
created equal,” and asked Mr. White whether he agrees that the might of any republic is found in how it
treats its vulnerable. Mr. White agreed. Turning to Ms. Gorod, he asked whether she is familiar with
the Federal Trade Commission. He established that the President can appoint and remove the
Commissioner. Similarly, the President can remove and appoint the CFPB director.
Rep. Trey Hollingsworth (R-IN) cited his background in manufacturing as influencing his thought
process. He characterized Democrat arguments as focusing on the results the CFPB achieves. However,
he differentiated his own argument as ensuring that the results are achieved through the right
processes. If the process is bad, it creates bad results. More results could be had if all limitations on
CFPB power were suspended; however, we probably would not appreciate the trampling of civil
liberties. Mr. Olson agreed that in such a situation, the results would not be acceptable to the American
people. Mr. White agreed, citing checks and balances as the bedrock of our Constitution. Mr. Olson
recommended restoring the President’s power over subordinates, as well as restoring Congressional
funding power as bringing CFPB structural questions back in line. Hollingsworth cited constituent
concern over the expansion of a bureaucracy that has increasing power over their lives, with no means
of redress. In the way that Hollingsworth is accountable to his constituents, he called for similar
accountable to unelected bureaucrats.
Rep. Joyce Beatty (D-OH) stated her belief in transparency. She asked the witnesses whether they are
aware that the CFPB has provided $11.8 billion in relief to consumers. Beatty questioned about $3.7
billion in compensation to consumers as a result of enforcement actions; $7.7 billion in cancelled debt
relief from enforcement activity; $371 million in relief as a result of supervisory activity. The witnesses
replied that they were aware; but only two witnesses agreed that these results were positive. Beatty
then noted that we are in the middle of deciding the question of the CFPB’s structure, indicating that the
authority of Federal judges in adjudicating laws is called into question. She reiterated her support for
the CFPB director as standing up for the “least of us.”
Rep. David Kustoff (R-TN) stated his interpretation of the CFPB’s structure as unconstitutional. The
need for the CFPB is now what is being debated today; while we may need a CFPB, we first and foremost
need it to be constitutionally sound. He asked Mr. Olson to describe what this would look like. Olson
replied that such an agency would be part of the executive branch, just as is the Energy Department or a
similar agency. Thus, the President would be responsible for what the agency does, and would have
authority to ensure that the agency conducts itself within the confines of the law. If the agency does
not, the President would then be accountable to the electorate. Further, if the agency acts without
authority, the President would then have authority to remove the Director. Kustoff characterized this as
“serving at the pleasure of the President.”
Rep. Michael Capuano (D-MA) noted that there have been numerous hearings attacking the CFPB, but
only one examining its achievements (the Wells Fargo hearing). He wondered whether it is normal that
the full court of a DC court of appeals takes an on-bank decision from a three judge panel. Olson replied
that it happens; Capuano noted that it happens but is unusual and Olson agreed. Capuano continued
that there are numerous agencies with directors appointed for many more years than the CFPB director,
namely the FBI Director, who has a 10 year term. He wondered whether we want these officials to be
able to be removed for political purposes. Olson replied that this is a good reason, given that the
President is accountable. Prakash corrected that term of office does not preclude removal for cause.
Capuano argued that there are some government officials who should not be subject to removal for
political purposes. Capuano continued, saying that PHH was proven to have brought people in to get
mortgages, and then required them to purchase mortgage insurance from their company for kickback
purposes, and charged additional fees to consumers who did not do this. Capuano stressed that this is
the case being defended: one where consumers are being maltreated. He characterized Olson’s
presence on the panel as a “massive conflict of interest,” given his client.
Rep. Dave Trott (R-MI) questioned Ms. Gorod’s characterization of the cause of the financial crisis in her
written testimony. He quoted an article stating that the GSEs were directed to direct an increasing
portion of their mortgages to subprime mortgage borrowers; Gorod replied that following numerous
Congressional reviews of the crisis, the conclusion rested upon the failure of major regulatory
authorities to act. Thus, the CFPB, headed by a single director removable only by cause was the best
way to patch this system. Trott wondered whether the restriction of removal impedes the President’s
constitutional power; Gorod stated that there are no Constitutional issues, and the Supreme Court has
consistently found no constitutional issues. Trott continued that it cannot be argued that the CFPB has
been inefficient or neglected its duty. Rather, there must be a case of malfeasance if the President
wants to remove Director Cordray. Gorod agreed that there has been no case of inefficiency or neglect,
and continued that there is no case against Mr. Cordray.
Committee Ranking Member Maxine Waters (D-CA) stated that Dodd-Frank is extremely important and
valuable to this country. Its centerpiece is a Consumer Financial Protection Bureau. Prior to its
creation, there was no one speaking up for or looking out for consumers to ensure that they would
never again be in the position of being dropped off of America’s agenda. She wondered how anyone
could be against representation for consumers, pointing out that all witnesses know and understand
what payday lenders, debt collectors, and auto lenders do to consumers. She admonished those who
support the abolishment of the CFPB, and thanked Ms. Gorod for talking about what the Constitution is
all about. The three judge decision is of no import, stated Waters, and she is glad the decision was
vacated. PHH does not have a leg to stand on, by Waters’ estimation, and she committed to fighting as
hard as she can for the CFPB, and she considers it one of the most important fights of her career.
Rep. Barry Loudermilk (R-GA) noted that Dodd-Frank was created under the purview of the Congress.
Further, the responsibility of the Executive is to execute such a law, provided that it is constitutional,
stated Mr. White. If there is a difference in interpretation with regards to constitutionality, the issues
generally end up in court. Loudermilk asked Mr. Prakash to describe “chevron deference,” which he
characterized as court doctrine that says that courts should defer to the reasonable construction of
statutes by agencies. If there is wiggle room in the statute, he continued, the agency wins. Loudermilk
noted that there is no agency entitled with the full chevron deference if there are multiple agencies
overseeing the law, with the exception of the CFPB. With the CFPB, the courts are told they must listen
to the Director; this gives the CFPB more power than other agencies. Olson agreed that the scale and
breadth of authority given to the CFPB Director is significantly greater than any other agency or
department head. The worst of delegation of authority is wrapped up in the CFPB. Olson allowed that
the CFPB is subject to judicial oversight, but there is an “awful lot of wiggle room” with very little
supervision.
Rep. Claudia Tenney (R-NY) noted that as a business owner, she is uniquely aware of the challenge of
access to credit for small businesses. She sees the CFPB as more of an obstacle for businesses. She
asked Mr. Olson to comment on where he sees the future of the chevron deference going. She
wondered whether the courts are actually drawing back this authority, though it has the ability to do so.
Olson noted that it is difficult to predict what the Supreme Court will do, but that the interpretation of
their own authority by executive branch agencies has gone too far. In situations such as these, the
courts should exercise a more “scrupulous role” with regard to this process. He characterized the
unchecked model of the CFPB as a “constitutional nightmare.”
Committee Chairman Jeb Hensarling (R-TX) described Committee members’ responsibility to uphold
the Constitution, and was glad to remind the Committee that a three judge panel has already found the
CFPB to be an unconstitutional agency. He characterized Democratic arguments as saying that the ends
justify the means, but he disagrees. He wondered what has happened to due process under the law,
without even delving into the question of whether the CFPB is, in fact, helping customers. He noted that
lending is more expensive and fewer minorities qualify for mortgages, as evidence of the injury done to
consumers. Setting that aside, he wondered how due process is being upheld at the CFPB. Olson
replied that removal of the checks and balances allows corruption from taking root within the agency.
Mr. White agreed that the way the CFPB asserted jurisdiction over auto lenders through informal
guidance was troublesome.
Subcommittee Ranking Member Al Green (D-TX) asked Mr. Prakash whether he would have Morrison
v. Olson overturned. Mr. Prakash agreed that he would. Green clarified that Prakash came to deliver
testimony while knowing that the lawyer who represents PHH, a case pending in federal court, would be
here today giving his client’s cause a hearing before Congress. Prakash confirmed that he knew Olson
would be present. Green questioned whether Prakash agreed that Olson’s presence is appropriate;
Prakash stated that he doesn’t think this is a problem. Green questioned whether it is acceptable for
lawyers to bring their clients’ cases to the Congress; Mr. Prakash and Mr. White both stated that it is not
a problem. Ms. Gorod stated that the substantive remarks made by the other witnesses are most
troubling, but did not comment on Olson’s representation of his client. Green criticized Olson for his
presence, given that his client has litigation pending before a federal cause, characterizing it as a
disservice to the country. Congress should not have lawyers bring their cases before the Congress
unless every lawyer has that opportunity; he hopes that once the case is finalized, he and Mr. Olson can
have further conversations about this.
Rep. Lee Zeldin (R-NY) stated that Ms. Gorod is also representing individuals in the PHH case. In those
proceedings, she argued on behalf of the Ranking Member and other clients that the structure of the
CFPB is constitutional. She is also the council for an amicus brief submitted by 21 members, some of
whom are present today. Gorod confirmed, but differentiated an amicus brief from a party in the
litigation. Zeldin questioned whether she could provide truth testimony; Gorod assured him that she
could. Zeldin asked whether Gorod consulted with the Ranking Member or any members or staff prior
to providing testimony; she stated that she doesn’t believe there was consultation, though they were
aware that she was testifying.
Chairman Wagner interjected, asking Ms. Gorod to describe the role of government. Gorod named
several, and Wagner clarified that it is to “protect and preserve the individual rights and freedoms of the
people, as laid out in the constitution, liberties that are endowed by our creator.” She then yielded
back.
Rep. Zeldin then stated the hypocrisy on the part of the Ranking Member to allege that Mr. Olson is
giving his client an unfair advantage, while Ms. Gorod also appears on behalf of members in the PHH
case.
Chairwoman Ann Wagner (R-MO) thanked the witnesses for their testimony and concluded the hearing.