Elizabeth Warren’s CFPB: This Is Progress?

Published August 2, 2017

For a century now, American law has recognized the freedom of the parties to a contract to agree to submit disputes to arbitration. Arbitration allows experts chosen by the parties to consider and rule on the issues, much more quickly and at much lower costs.

The American Arbitration Association was established nearly a century ago in 1926 to provide such arbitration services, under well-established rules of due process.

Today, more disputes are settled through such private dispute resolution services than through all the federal and state courts combined.

But progressives are certain they know better. Earlier this month, the Consumer Financial Protection Bureau (CFPB) issued a ruling barring contractual, mandatory arbitration clauses for class action lawsuits.

That means parties to a contract can no longer agree to arbitration for such suits.

Sen. Elizabeth Warren, D-Mass., was the intellectual godmother of the CFPB, established in the Dodd-Frank legislation of 2010. She carefully designed it so that it constitutes a thorough violation of the Constitution’s separation of powers doctrine, not answerable to the president, the Congress, or even another so-called independent agency.

The president cannot remove the director of the CFPB for policy disagreements, but only for “inefficiency, neglect of duty or malfeasance in office.”

Congress does not appropriate funds for the CFPB, so it cannot exercise oversight through its usual power of the purse. The CFPB is funded by a stream of revenue from the Federal Reserve Board.

The Founding Fathers crafted the separation of powers doctrine to prevent abuses of liberty seen in England in the 17th and 18th centuries. They saw tyranny whenever the powers of the executive, legislative and judicial branches were combined in the same government authority.

This is exactly what Sen. Warren designed in the CFPB, to exempt it from any political influence.

But political in this context means democratic. Progressivism was originally all about extending democratic power and control. An original progressive project was amending the Constitution to provide for the direct election of senators. So was extending the vote to women.

But Warren’s CFPB restrains democratic power and control. It not only combines executive, legislative and judicial powers in one agency, but even in one person, the CFPB director, who is currently Warren’s hand-picked Richard Cordray, former Ohio attorney general.

On Oct. 11, 2016, the DC Circuit Court ruled that this combination of powers in the same agency, and in the hands of one person, is exactly what the Constitution prohibits in its separation of powers doctrine.

In PHH Corporation v. Consumer Financial Protection Bureau, PHH was a mortgage company that also sold mortgage reinsurance through a subsidiary providing protection to mortgage insurers who insured risky, low-down-payment mortgages.

This was a longstanding, common practice in the mortgage business, which had long been recognized as legal, as long as the rates charged for the mortgage reinsurance were reasonable, and not inflated in comparison with the risk insured.

But the literally out of control Cordray/Elizabeth Warren CFPB ruled suddenly that PHH’s reinsurance rates, though not providing for excessive, unreasonable, market returns, nevertheless constituted an illegal kickback under the Real Estate Settlement Procedures Act.

The rogue CFPB consequently imposed a $109 million fine on PHH. PHH sued, claiming that the CFPB constituted an unconstitutional violation of the Constitution’s separation of powers doctrine.

The DC Circuit agreed, correcting the violation by ruling that the director of the CFPB could be fired by the president at will, just as for any other officer of the executive branch.

Defenders of the CFPB try to analogize it to the Federal Reserve. But the Fed is designed precisely to be independent of democratic rule, because of a long history of democratic abuse of the currency, which is supposed to be maintained at a stable value, without inflation or deflation favoring any political interest.

There is no such interest in insulating regulators from democratic control. Just as with any other government agency, democratic control over the CFPB is necessary to prevent regulatory abuse of the public.

[Originally Published at Investor’s Daily Business]