Fannie Mae (FNMA)

[Robert from yahoo bd]

Jessica Thompson, of the Pacific Legal Foundation, in today's hearing in the House Finance Committee (from her written material):

"CFPB v. Community
Financial Services has the potential to be one of the most important separation of
powers decisions in recent history.
Congress should not wait for the Court to force its hand with regards to CFPB’s
funding. The separation of powers is essential to the design of the U.S. Constitution
and the rule of law—it ensures transparency and accountability, thereby protecting our representative form of government. The CFPB is ripe for reform to prevent
further damage to the U.S. Constitution’s separation of powers.

I. CFPB’s Funding Mechanism Violates the Separation of Powers

Article I, Section 9, Clause 7 of the Constitution solely vests Congress with the
power of the purse: “no money shall be drawn from the treasury, but in consequence
of appropriations made by law.” As James Madison explained in The Federalist
Papers, “This power over the purse, may, in fact, be regarded as the most complete
and effectual weapon with which any constitution can arm the immediate
representatives of the people[.]”4 The power of the purse guards against “all the
overgrown prerogatives of the other branches of the government.”5

Yet the Dodd-Frank Act designed CFPB to be a financial regulator with full
independence from Congress and the political process. With the constitutionality of
CFPB’s perpetual self-funding mechanism squarely presented to the Court, CFPB
has reversed course on its long-stated view that it is a “non-appropriated agency” in
its petition for certiorari6 and cert-stage reply brief.7 As prominent administrative
law scholar, Adam White, has detailed at length, this reversal is contradicted by a
decade of statements from CFPB and Congress itself.8

Congress delegated a core legislative power to CFPB in the Dodd-Frank Act.
With a simple one page letter to the Federal Reserve, the CFPB can fund itself with
up to 12 percent of the Federal Reserve’s annual operating expenses, in perpetuity.9
CFPB recently estimated its funding authority was $717.5 million in fiscal year 2021,
and $734.0 million in fiscal year 2022.10 For comparison purposes, the Office of Management and Budget was appropriated $106.6 million and $116 million in fiscal
years 2021 and 2022, respectively, for its salaries and expenses.11

Dodd-Frank further shields CFPB’s self-funding mechanism from oversight,
declaring that its funds “shall not be subject to review by the Committees on
Appropriations of the House of Representatives and the Senate,” nor subject to “the
consent or approval of the Director of the Office of Management and Budget.”12

CFPB’s independence from congressional and presidential appropriations processes
was by design, as the Senate Banking Committee explained CFPB would not be
“subject to repeated Congressional pressure.”13 “The Committee finds that the
assurance of adequate funding, independent of the Congressional appropriations
process, is absolutely essential to the independent operations of any financial
regulator.”14

From its inception, CFPB understood the vast power of the purse Congress
delegated to the new agency. In one of its first strategic plans, CFPB emphasized that
by “providing the CFPB with funding outside of the congressional appropriations
process,” Congress had “ensure[d] full independence” for the agency.15 Despite its
position in recent filings before the Supreme Court, CFPB has always described its
perpetual self-funding as not coming from “appropriations.”16 In 2021, CFPB Director
Rohit Chopra described CFPB as “an independent, non-appropriated bureau,” and
emphasized that its funds transferred from the Federal Reserve “are not government
funds or appropriated funds.”17 CFPB’s most recent financial report, released the day
after CFPB filed its cert petition, continues to espouse this view: “The Dodd-Frank
Act explicitly provides that Bureau funds obtained by or transferred to the CFPB are
not government funds or appropriated funds.”18

CFPB’s attempt to recharacterize its long-held status when placed under
constitutional scrutiny may be unsurprising, but its lack of candor to the Supreme
Court should ring alarm bells for Congress. It is long past time for Congress to reform
CFPB and submit the agency to the constitutional appropriations process."

FOOTNOTES 4 to 18:

4 The Federalist Papers : No. 58, Objection That The Number of Members Will Not Be
Augmented as the Progress of Population Demands Considered, Madison, available at
https://avalon.law.yale.edu/18th_century/fed58.asp.

5 Id.

6 Pet’r Pet. Cert., 16 (“The CFPB’s funding mechanism is entirely consistent with the text of
the Appropriations Clause, with longstanding practice, and with this Court’s precedent.
Congress provided that the CFPB shall be funded ‘from the combined earnings of the Federal
Reserve System.’ 12 U.S.C. 5497(a)(1).”)

7 Pet'r Reply Supp. Cert., at 2 (“Text, history, and precedent refute respondents’ assertion
that Congress violated the Appropriations Clause by authorizing the CFPB to spend a
specified amount from a specified source for a specified purpose.”).

8. Adam J. White, The CFPB’s Lack of Candor to the Court, Continued, Yale Journal on
Regulation, Feb. 3; Adam J. White, The CFPB’s Blank Check—or, Delegating Congress’s
Power of the Purse, Yale Journal on Regulation, Nov. 27; Adam J. White, The CFPB Engages
in Legal Deception, Wall Street Journal, Dec. 2022.

9 12 U.S.C.A. § 5497(a)(2)(C).

10 Consumer Financial Protection Bureau, Annual performance plan and report, and budget
overview, at 12 (Feb. 2022).

11 H.R. 133, 117th Cong. at 212 (2021); H.R. 2471, 117th Cong. at 204 (2022).

12 12 U.S.C.A. § 5497(a)(2)(C); § 5497(a)(4)(E).
13 S. Rep. No. 111-176, at 163 (2010).

14 Id.

15 Consumer Fin. Prot. Bureau, Consumer Financial Protection Bureau Strategic Plan FY
2013 - FY 2017, at 36-37 (Apr. 2013).

16 See e.g., Consumer Fin. Prot. Bureau, Financial report of the Consumer Financial
Protection Bureau, at 65 (Nov. 2015) (“The Congress, […] followed a long-established
precedent in providing the CFPB with sources of funding outside of the Congressional
appropriations process to ensure full independence […].”).

17 Consumer Fin. Prot. Bureau, Financial report of the Consumer Financial Protection
Bureau, at 45, 51 (Nov. 2021).

18 Consumer Fin. Prot. Bureau, Financial report of the Consumer Financial Protection
Bureau, at 45, 51 (Nov. 2022)."

-----

"Fortunately, Mr. Sturner and Townstone decided to fight back. When
Townstone was on the precipice of settling the case, PLF joined the Townstone
litigation team providing pro bono legal services to help alleviate some of the financial
strain on the small mortgage broker.
Then on February 3, 2023, nearly six years after
the CFPB first contacted Townstone, a federal judge in the Northern District of
Illinois dismissed, the CFPB’s case against Townstone, with prejudice.30 Applying the
Chevron framework, the district court held that ECOA prohibits discrimination
against applicants, but Regulation B’s language prohibiting discouragement of
prospective applicants exceeds the agency’s authority granted by Congress.31"

" But Townstone’s fight is illustrative of the harm that CFPB’s
overreach and avoidance of APA rulemaking can inflict on a small financial services
provider and in turn, consumers. Townstone’s reputation with consumers and the
financial industry was sullied by CFPB’s allegations..."

"Not many small financial providers would have the courage to run the gauntlet
and challenge the legality of a novel agency interpretation of a nearly 50-year-old
regulation. But the Constitution’s guarantee of the separation of powers is stronger
because of Townstone’s courage."

If Congress doesn’t act to bring CFPB back within Congressional oversight,
one thing is certain: the cost of compliance for financial institutions will continue to
increase as CFPB expands its authority outside of the APA rulemaking process, and
small financial institutions will feel the most financial strain from the increase in
compliance costs, and consumer access to financial services will suffer.

IV. The U.S. Constitution is the Solution

a. Congress should act now to bring CFPB within the constitutional authority. For example, in the Townstone case, CPFB argued that the authority
granted to it in the anti-circumvention provision of ECOA permits it to enforce
Regulation B to prevent the “discouragement” of “prospective applicants.”37 Congress
should start its review of authority delegated to CFPB with similar anti-
circumvention provisions in other statutes, such as the Truth in Lending Act
(TILA),38 as well as general rulemaking authority under the Consumer Financial
Protection Act39 and its Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)
authority granted in the Dodd-Frank Act.40


appropriations process
Although the U.S. Supreme Court has announced it will hear arguments
regarding CFPB’s perpetual self-funding mechanism, Congress should act now to
reform CFPB and bring it within the constitutional appropriations process and
ensure proper Congressional oversight. Congress should fulfill its constitutional duty
to control the power of the purse and bring CFPB into the constitutional
appropriations process.

b. Congress should conduct oversight hearings to review the breadth of
authority delegated to CFPB

The Constitution vests “all legislative powers” in Congress.34 Congress should
jealously guard its duty as the people’s representatives to craft the laws and limits
its delegation of that power to executive agencies. As the Supreme Court’s recent
separation of powers cases35 and the application of the major questions doctrine36
demonstrate, executive agencies have shown a willingness to stretch their authority
beyond the powers granted by Congress. This has been an alarming trend for decades,
and although the Supreme Court has increased its scrutiny of agency action of late,
Congress also has a duty to police the boundaries of the separation of powers. The
CFPB v. Townstone Financial, et al. decision is illustrative of how CFPB is not afraid
to engage in alarming overreach.
Regulation B was promulgated in 1975 and faced few legal challenges. The
Northern District of Illinois was the first to consider whether the authority delegated
to the Federal Reserve--later CFPB--in ECOA reaches the “discouragement” of
“prospective applicants.” Expansion of agency authority through enforcement actions
is another way that CFPB evades the APA rulemaking process and poses risks to the
rule of law. As the Townstone case shows, the attempted expansion of agency
authority through litigation can cause a nearly 50-year-old regulation to be called
into question. This harms regulated financial institutions through increased
compliance costs and these costs will ultimately affect consumer access to financial
services.

Congress should conduct oversight hearings to examine the delegations of
legislative power to CFPB. Where appropriate, Congress should amend statutes
granting legislative power to CFPB to place explicit limitations on CFPB’s exercise of authority.

V. Conclusion

The constitutional defects in the structure of the CFPB, combined with CFPB’s
appetite for expanded authority compound one another to create separation of powers
violations that pose a threat to individual liberty and consumer access to financial
services. Now is the time for Congress to reform the CFPB.

Thank you for the opportunity to testify on this important constitutional issue.

I look forward to answering your questions.