Congress Should Appropriate Money for the CFPB Through the Congressional Appropriation Process

Last week, I had the honor of testifying before the House Financial Services Subcommittee on Financial Institutions and Monetary Policy on how Congress should reform the Consumer Financial Protection Bureau (CFPB). I was fortunate to testify alongside a panel of distinguished witnesses and appreciated the opportunity to share my views with Chairman Andy Barr (R-KY), Ranking Member Bill Foster (D-IL), and the other members of the committee.  

That being said, testifying at a congressional hearing has some strange aspects. Witnesses have a few sentences to discuss complex topics, and sometimes, observers misconstrue a statement, casting it in the worst possible light. And sure enough, one day after the hearing, David Dayen of the progressive outlet The American Prospect charged that I had “inadvertently revealed a far-right mission to hobble the administrative state.

What was my dastardly plan? I proposed that “Congress should pass conditional appropriations to guarantee the Federal Reserve and other financial agencies’ proper functioning in case the Supreme Court supports the Fifth Circuit’s decision.” A plan to “hobble the administrative state” with a nefarious scheme to ensure that an agency’s funding is preserved!

Don’t get me wrong, I’m no fan of the administrative state. The administrative state has an uneasy relationship with proper constitutional structure. James Madison was correct to charge, in Federalist 47, that “The accumulation of all powers, legislative, executive, and judiciary, in the same hands… may justly be pronounced the very definition of tyranny.” My objections to such arrangements—which are regularly found in the modern administrative state—are both constitutional and moral. But that’s not what my testimony was about.

Notably, asking Congress to fund such agencies rather than have them shut down is unrelated to shutting it down. I certainly believe we should transition away from the administrative state into a better system that ensures that (for instance) elected representatives, not unelected bureaucrats, make legislative decisions. But the key word there is “transition.” I also believe that any change in governance along these lines must occur in a reasonable and ordered way that does not cause additional problems or upheaval.

My proposal for conditional congressional appropriations for the CFPB is motivated by the pending Supreme Court case Consumer Financial Protection Bureau v. Community Financial Services Association of America. The court is considering whether the CFPB’s institutional design—that requires the Federal Reserve to pay the CFPB’s budget—is consistent with the constitutional requirement that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.”

In my view, when the Constitution says “no money,” it means it. If the CFPB is to spend government money, Congress must first appropriate it. There is no doubt that the CFPB is budgeted outside of the normal appropriations system. The CPFB’s first director, Richard Cordray (an Obama appointee), testified that CFPB’s revenue was from “non-appropriated funds.” CFPB’s strategic plan confirmed that it was provided “funding outside of the congressional appropriations process.” Its financial reports have always stated that the CFPB’s funding is not “appropriated funds.” Most recently, the current CFPB director, Director Rohit Chopra (a Biden appointee), contrasted in his testimony the Bureau’s normal funding from its supplemental funding requests, which are “subject to the normal appropriations process.”

It is notoriously difficult to predict judicial decisions. The Supreme Court might or might not decide that the CFPB’s current funding scheme is unconstitutional (even though that’s the way that the lower court saw it). Regardless, my recommendation of conditional appropriations for the CFPB is similar to advice to wear a seatbelt and to buy fire insurance. It costs almost nothing and protects against something everyone, even David Dayen, thinks would be a bad outcome. Presumably, if Dayen learned that The American Prospect had purchased fire insurance for its offices, he wouldn’t jump to the conclusion that his colleagues just want their workplace to be destroyed by flames. But he makes a similar error when he theorizes that my “mission to hobble the administrative state” has been revealed by my recommendation that Congress engage in prudent, long-term planning.

Also, Dayen’s point that a Supreme Court ruling that finds CFPB’s funding scheme to be unconstitutional could have broader applications and broader consequences is overheated. His predictions of “a serious threat,” “potential chaos,” and the “knock[ing] out” of “a significant portion of the federal government” are unserious and hyperbolic. Why? As I noted in my testimony, “Congressional appropriation for these agencies is an easy fix that resolves any such problems.” If the Supreme Court strikes down non-appropriated funding mechanisms for any of these agencies, then Congress will begin to appropriate funding for them.

Congress should ensure that our method of funding financial regulators will pass constitutional muster. That should be a simple and commonsensical recommendation.