[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
THE BUREAU OF CONSUMER FINANCIAL
PROTECTION'S UNCONSTITUTIONAL DESIGN
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT
AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
MARCH 21, 2017
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-6
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PETER T. KING, New York MAXINE WATERS, California, Ranking
EDWARD R. ROYCE, California Member
FRANK D. LUCAS, Oklahoma CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina NYDIA M. VELAZQUEZ, New York
STEVAN PEARCE, New Mexico BRAD SHERMAN, California
BILL POSEY, Florida GREGORY W. MEEKS, New York
BLAINE LUETKEMEYER, Missouri MICHAEL E. CAPUANO, Massachusetts
BILL HUIZENGA, Michigan WM. LACY CLAY, Missouri
SEAN P. DUFFY, Wisconsin STEPHEN F. LYNCH, Massachusetts
STEVE STIVERS, Ohio DAVID SCOTT, Georgia
RANDY HULTGREN, Illinois AL GREEN, Texas
DENNIS A. ROSS, Florida EMANUEL CLEAVER, Missouri
ROBERT PITTENGER, North Carolina GWEN MOORE, Wisconsin
ANN WAGNER, Missouri KEITH ELLISON, Minnesota
ANDY BARR, Kentucky ED PERLMUTTER, Colorado
KEITH J. ROTHFUS, Pennsylvania JAMES A. HIMES, Connecticut
LUKE MESSER, Indiana BILL FOSTER, Illinois
SCOTT TIPTON, Colorado DANIEL T. KILDEE, Michigan
ROGER WILLIAMS, Texas JOHN K. DELANEY, Maryland
BRUCE POLIQUIN, Maine KYRSTEN SINEMA, Arizona
MIA LOVE, Utah JOYCE BEATTY, Ohio
FRENCH HILL, Arkansas DENNY HECK, Washington
TOM EMMER, Minnesota JUAN VARGAS, California
LEE M. ZELDIN, New York JOSH GOTTHEIMER, New Jersey
DAVID A. TROTT, Michigan VICENTE GONZALEZ, Texas
BARRY LOUDERMILK, Georgia CHARLIE CRIST, Florida
ALEXANDER X. MOONEY, West Virginia RUBEN KIHUEN, Nevada
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
Kirsten Sutton Mork, Staff Director
Subcommittee on Oversight and Investigations
ANN WAGNER, Missouri, Chairwoman
SCOTT TIPTON, Colorado, Vice AL GREEN, Texas, Ranking Member
Chairman KEITH ELLISON, Minnesota
PETER T. KING, New York EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina JOYCE BEATTY, Ohio
DENNIS A. ROSS, Florida MICHAEL E. CAPUANO, Massachusetts
LUKE MESSER, Indiana GWEN MOORE, Wisconsin
LEE M. ZELDIN, New York JOSH GOTTHEIMER, New Jersey
DAVID A. TROTT, Michigan VICENTE GONZALEZ, Texas
BARRY LOUDERMILK, Georgia CHARLIE CRIST, Florida
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
C O N T E N T S
----------
Page
Hearing held on:
March 21, 2017............................................... 1
Appendix:
March 21, 2017............................................... 37
WITNESSES
Tuesday, March 21, 2017
Gorod, Brianne J., Chief Counsel, Constitution Accountability
Center......................................................... 9
Olson, Hon. Theodore B., Partner, Gibson, Dunn & Crutcher LLP.... 4
Prakash, Saikrishna Bangalore, James Monroe Distinguished
Professor, University of Virginia School of Law................ 6
White, Adam J., Research Fellow, the Hoover Institution.......... 8
APPENDIX
Prepared statements:
Gorod, Brianne J............................................. 38
Olson, Hon. Theodore B....................................... 52
Prakash, Saikrishna Bangalore................................ 68
White, Adam J................................................ 81
Additional Material Submitted for the Record
Wagner, Hon. Ann:
Letter from the American Financial Services Association...... 95
Letter from the Consumer Bankers Association................. 96
Ellison, Hon. Keith:
Slide entitled, ``CFPB Actions to Enforce the Real Estate
Settlement Procedures Act''................................ 100
Green, Hon. Al:
Written statement of Americans for Financial Reform.......... 101
Amicus Brief from PHH Corporation v. Consumer Financial
Protection Bureau.......................................... 106
Written statement of the Center for American Progress........ 128
Waters, Hon. Maxine:
Letter from Consumers Union.................................. 131
THE BUREAU OF CONSUMER
FINANCIAL PROTECTION'S
UNCONSTITUTIONAL DESIGN
----------
Tuesday, March 21, 2017
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:08 a.m., in
room 2128, Hon. Ann Wagner [chairwoman of the subcommittee]
presiding.
Members present: Representatives Wagner, Tipton, Ross,
Messer, Zeldin, Trott, Loudermilk, Kustoff, Tenney,
Hollingsworth; Green, Ellison, Cleaver, Beatty, Capuano,
Gottheimer, and Gonzalez.
Ex officio present: Representatives Hensarling and Waters.
Chairwoman Wagner. The Subcommittee on Oversight and
Investigations will come to order. Welcome. This is my very
first time chairing the Subcommittee on Oversight. We are going
to have--Ranking Member Green and I have just spoken. Many of
our members are still in conferences. The President of the
United States is speaking to our conference at the moment, so
folks are going to be a little tardy in streaming in, but we
want to get started on your testimony. And many have already
seen your written testimony as you have submitted it.
So today's hearing is entitled, ``The Bureau of Consumer
Financial Protection's Unconstitutional Design.''
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time.
The Chair now recognizes herself for 4 minutes for an
opening statement.
For the past 8 years, the American people, under the Obama
Administration, have grown complacent with the unchecked power
emanating from Washington and its complete disregard for the
Constitution. From health care to energy to financial services,
Washington has worked to plan every aspect of your life and
decide what is best for you.
Now, more than ever, we have a new obligation to examine
the checks and balances of our Federal Government, and ensure
that our Constitution is reflected by it. It is time to bring
accountability back to Washington for we, the people.
Nothing embodies the Washington-knows-best mindset more
than the Consumer Financial Protection Bureau (CFPB), by
removing choices and making access to financial products more
difficult under the guise of consumer protection. Since the
creation of the CFPB, we have seen regulations that make it
more difficult for consumers to qualify for a mortgage, obtain
an auto loan, and access forms of credit. The superseding
independence of the Bureau has demonstrated how a lack of
checks and balances can lead to abuse.
In the majority opinion of a case last October, a Federal
judge ruled that, ``The Director of the CFPB is the single most
powerful official in the entire U.S. Government other than the
President.''
As a result of a lack of safeguards, we have seen examples
of widespread discrimination within the CFPB itself under
Director Cordray's tenure, to which this committee has held
five hearings itself. Additionally, without the ability of
Congress and the Executive Branch to carry out proper
oversight, the CFPB has become arrogant in its cloak of
unaccountability by pursuing policy and regulating entities
outside of its authorized scope, to the detriment of consumers.
Without proper checks and balances, the natural tendency of
government is always to continue expanding its power and reach,
and the CFPB has been a perfect example. The CFPB is
unaccountable to Congress in that it does not rely upon
Congress for funding; instead, taking its funding stream from
the Federal Reserve, to be allotted by the CFPB Director with
no review from Congress. As a result, the CFPB has grown
comfortable in repeatedly ignoring oversight requests made by
this committee, including for subpoenaed records.
Additionally, the CFPB is unaccountable to the President as
well as by being headed by a single Director who can only be
removed for cause rather than at will. The Constitution vests
the executive power in an elected President of the United
States of America, and not in various unelected agency and
bureau heads.
Lastly, the CFPB is unaccountable to the Judiciary, as the
Dodd-Frank Act mandated, that courts give extra deference to
the CFPB statutory interpretations, even if they are not
granted exclusive interpretive authority. In this way, the CFPB
can reinterpret consumer laws that are already on the books
with established case law, and have been regulated by other
agencies for years.
Today, we will be examining the unconstitutional structure
of the CFPB and how it has yielded unaccountability to Congress
and the Executive Branch. Additionally, we will look at ways
that the CFPB can be restructured in order to make the Bureau
constitutional, as well as more accountable to Congress and the
executive.
Finally, we will be looking at what authority the President
currently has to remove the CFPB Director, even before the
resolution of ongoing litigation.
I now recognize the gentleman from Texas, my good friend
and colleague, Mr. Green, the ranking member of the
subcommittee, for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman.
Madam Chair, speaking of power, I would like to, this
morning, apologize to the American people for this shameful and
disrespectful abuse of power. The Republicans are abusing their
power by taking one side in the piece of litigation that is
presently pending in a Federal Court right here in Washington,
D.C. They are taking one side, the side of a mortgage company
that has been accused of ripping off Americans, taking one side
today, taking one side by allowing Mr. Olson to testify and
present evidence and issues that will benefit his client. One
side.
Wouldn't it be great if every lawyer could have his
client's case presented to the Congress of the United States of
America? I suppose we have to ask ourselves, is this something
that we will do in the future for every lawyer who has a case
pending? Or is this simply a special congressional fix for Mr.
Olson's client?
One side. It is a shameful and disgraceful circumstance
that we find ourselves dealing with today. And I am confident
that Mr. Olson will indicate in his testimony, because I have a
copy of it, that the views he will express will not necessarily
be those of his firm or his client. Note the operative words,
``not necessarily,'' meaning maybe, maybe not, the views of his
client. However, over on page 10 of his testimony, Mr. Olson
cites his client's case and gives commentary about his client's
case. One side, the side of a mortgage company accused of
ripping off the American people.
Mr. Olson made this argument, or a similar argument, some
39 years ago in Morrison v. Olson, a case that he is intimately
familiar with, because in that case, Morrison v. Olson, the
``Olson'' is Mr. Ted Olson, who is testifying before Congress
today. In that case, Morrison v. Olson, a special prosecutor
was appointed to investigate Mr. Olson for lying to Congress 39
years ago. Mr. Olson has made this argument before. But now, to
be fair to Mr. Olson, he was never proven to have lied to
Congress. But 39 years ago, he made similar arguments and lost
the case before the United States Supreme Court seven to one.
Mr. Olson cites this case, which is why I bring it to your
attention, Morrison v. Olson. Check page 10 of his testimony
for those who desire to, and you will see where he brings the
present case that is pending, the PHH case, before the
Congress. The Morrison case he cites multiple times. The first,
I believe, is on page 3. That would be in footnote number 2.
This is a disgrace. The Congress of the United States of
America should not be in the business of promoting litigation.
It is disrespectful to the Judiciary of the United States of
America for the Congress to do this. We ought to be about the
business of deciding whether or not we are going to go forward
with legislation.
It is pretty obvious that Mr. Olson's clients--or client,
in this case, the PHH client, the mortgage company--will
benefit from this testimony today, because you are going to
find one side, my Republican colleagues, in support of that
case. They won't say it. They will just support the arguments
that are being made and the arguments that will be put forth,
similar to the arguments that were brought before the court 39
years ago by Mr. Olson.
I thank you for the time and I yield back.
Chairwoman Wagner. The Chair now recognizes the Vice Chair
of the subcommittee, the gentleman from Colorado, Mr. Tipton,
for 1 minute for an opening statement.
Mr. Tipton. Thank you, Madam Chairwoman. And thank you for
holding this hearing today on the CFPB's unconstitutional
structure.
After 6 years of the CFPB's existence, we are seeing
negative repercussions that have stemmed from the agency's
decision-making. Therefore, it is important that we discuss how
the Bureau's design allowed it to be wholly unaccountable to
Congress. The independence of the CFPB from both the President
and Congress has incentivized the Bureau to act with impunity,
while it consolidates supervisory and regulatory authority.
According to the unified agenda of its Federal regulations,
the CFPB has finalized over 50 rules; and just half of these
finalized rules have created $2.8 billion in cost and 17
million hours of paperwork. Surprisingly, these new burdens
were created without cost-benefit analysis or a study of the
cumulative impact of the new requirements, and the impact that
they would have on financial institutions or the businesses
that depend on access to capital for survival.
Under the guise of consumer protection, the Bureau has
expanded its regulatory net to capture industries that are
outside of its jurisdiction. It has favored enforcement actions
over rulemaking. It has utilized questionable data collection
and analysis to support an agenda driven by ideology instead of
fact.
Fundamental changes are needed to steer the CFPB back to
its original mandate. The current regulatory regime has created
a too-small-to-succeed atmosphere for those most in need of
assistance, whether it be a community bank, Main Street
business or credit union seeking a family to watch over.
Chairwoman Wagner. The gentleman's time has expired.
Mr. Tipton. I appreciate you holding this hearing, and I
look forward to the commentary.
Chairwoman Wagner. I now have the pleasure of welcoming our
witnesses. Mr. Ted Olson, the Honorable Ted Olson, is currently
a partner at Gibson Dunn serving as lead counsel on the PHH v.
CFPB case. Mr. Olson previously was Solicitor General of the
United States as well as Assistant Attorney General in charge
of the Office of Legal Counsel at the U.S. Department of
Justice.
Mr. Olson, you are recognized for 5 minutes.
STATEMENT OF THE HONORABLE THEODORE B. OLSON, PARTNER, GIBSON,
DUNN & CRUTCHER LLP
Mr. Olson. Thank you, Chairwoman Wagner, Ranking Member
Green, and members of the subcommittee.
I am grateful for the opportunity to address the important
question of the constitutionality of the CFPB's structure. The
views that I express are my own, and not necessarily those of
my firm or any client of my firm.
The Framers of the Constitution agreed that the
accumulation of legislative, executive, and judicial power in
the same hands is, in the words of the Framers, the very
definition of tyranny. That principle animated their
thoughtful, considered, and thoroughly debated decision to
structure a government of carefully separated powers, with
elaborate checks and balances. That structure has lasted for
230 years, far longer than any governmental structure in
history, and has delivered to the people of this country, the
American people, a prosperous, strong, and free society, which
is, and has been, the envy of the world. However tempting it
might be to invent new and complex government structures in the
interest of accomplishing some presumed efficiency or
independence, we abandon the carefully calibrated structure of
our Constitution at our peril.
My testimony today will explain how the CFPB's structure
violates the Constitution's separation of powers, turning to
first, bedrock constitutional principles; second, to the CFPB's
structure; and third, to the ways in which we might consider,
as Americans, approaches to cure that structure.
It bears emphasis that the Constitution's separation-of-
powers principles are a constitutional imperative, not a matter
of aesthetics. The Constitution expressly divides the
government's powers into three separate categories:
legislative; executive; and judicial, and it assigns these
powers to three branches of government in what are called the
vesting clauses, the first three Articles of the Constitution.
This structure, carefully explained by James Madison in
Federalist Papers 47 and 48, was calculated to divide authority
and, thus, protect liberty, but also to focus responsibility,
transparency, and accountability.
All executive power is vested in the President of the
United States. The Framers of the Constitution openly debated,
in June of 1787, whether or not the executive power should be
invested in a multiple or an individual unitary President. They
voted, after extensive debate, in favor of a unitary
presidency, to vest executive power in the President alone and
to vest the President with the responsibility to faithfully
execute the laws of the United States.
From the founding, the Constitution has been understood to
empower and, indeed, require the President to maintain
responsibility over Executive Branch subordinates through the
power of removal. This removal power enables the President to
ensure that the laws are faithfully executed. If the President
fails to do that, he loses responsibility over the execution of
powers.
Now, to be sure, the Supreme Court has recognized
exceptions in certain agencies, multiple-person agencies with
limited powers, and in the case that was mentioned by Ranking
Member Green, Morrison v. Olson, which involved a temporary
limited allocation of power to a single individual. But those
lines of authorities have been criticized by the Supreme Court,
and scholars in recent cases have questioned their validity.
The CFPB's structure is the product of aggregating some of
the most democratically unaccountable and power-centralizing
features of the Federal Government's administrative state. The
President is prevented from removing the head of the Bureau,
except for very limited circumstances, and therefore, the
President was stripped of the power to faithfully execute the
laws in these circumstances.
We have identified in our written testimony all of the
other ways in which power is concentrated in the CFPB, without
accountability to Congress over the budget, or to the President
in connection with the removal power. The Director's hiring
decisions are unchecked. None of his subordinates need the
consent of the Senate to be appointed. The Bureau is striking
in its unaccountability to Congress.
Given the CFPB's lack of democratic accountability, it has,
not surprisingly, during its brief existence rendered decisions
that are sweeping in scope and arbitrary and capricious in
substance.
I realize that my time has expired, and I can stop at this
point if that is appropriate.
[The prepared statement of Mr. Olson can be found on page
52 of the appendix.]
Chairwoman Wagner. The witness' time has expired, and I am
sure we will be able to proceed during some of the questioning
with some of your other points. We thank you for your written
testimony, and without objection, all of the witnesses' written
statements will be made a part of the hearing record.
Mr. Olson. Thank you, Chairwoman Wagner.
Chairwoman Wagner. And I appreciate your testimony.
Our next witness is Professor Saikrishna Prakash, a
professor at UVA Law, focusing on separation of powers,
particularly executive powers. Mr. Prakash previously has
clerked on the U.S. Court of Appeals for the D.C. Circuit and
for the U.S. Supreme Court, and has additionally served as
Associate General Counsel at OMB.
Mr. Prakash, you are now recognized for 5 minutes.
STATEMENT OF SAIKRISHNA BANGALORE PRAKASH, JAMES MONROE
DISTINGUISHED PROFESSOR, UNIVERSITY OF VIRGINIA SCHOOL OF LAW
Mr. Prakash. Thank you, Chairwoman Wagner and Ranking
Member Green, and thank you, members of the Financial Services
Committee, for inviting me here today.
I have been studying questions of separation of power for
about 2 decades now, and I have written various articles on
removal and a book on the original Presidency.
Let me start off with some basic principles. The
Constitution vests the executive power with the President. It
requires that he take care that the laws are faithfully
executed. These are principles understood by all, but what does
that mean? It means that the executive power, which is the
power to execute the laws, rests with the President; just like
the judicial power, the power to decide cases, rests with
judges; and just like the legislative power, the power to make
laws, rests with Congress.
From the beginning, this principle was understood. The
first Congress created several departments. Each of those
departments reflected the principle that the Constitution
itself made the President the constitutional executor of the
laws, and that others that were created by Congress to help him
execute the laws were his subordinates and assistants. And that
is why those first three statutes, the statutes that created
the Department of Foreign Affairs, the Department of the
Treasury, and the Department of War--people were less
politically correct back then--the Department of War, those
three statutes all assume that the President had a power to
remove. And James Madison famously explained why. He said, ``If
any power is executive, it has to be the power to supervise,
direct, and remove executive officers.'' And from that time on,
it has been understood that the removal is an executive power.
President Washington issued hundreds of commissions, each
of which noted that the officer served at the pleasure of the
President. He removed dozens of officials. He did all these
things without any statutory warrant. There was no statute that
ever said that the President could remove; and there was no
statute that ever imposed a for-cause restriction until the
Civil War.
Things changed during the Civil War, because Congress was
deeply unsatisfied with Andrew Johnson's Administration of the
South, and Congress put, for the first time, a for-cause
restriction in the statutes. And ever since then, questions
about limitations on the President's power to remove have
occasionally wandered into the courts. The courts haven't
exactly shined in this area. There are more zigzags in the
court's jurisprudence than on the slalom course. The court has
never stuck with one position. Myers v. United States is a case
that suggested the President has an unlimitable power to remove
with respect to people appointed with the advice and consent of
the Senate. That was decided by Chief Justice Taft, the only
member of the court to have been President prior to serving on
the court.
But about 9 years later, during the New Deal, at a time
when people were quite apprehensive about Presidential power,
the court did a 180-degree turn on President Roosevelt (FDR),
much to his astonishment, and they decided that the President
needed to abide by a statute that said he needed cause to
remove a Commissioner of the FTC.
FDR was shocked. His advisors were shocked. And several
members of the court that were part of the Myers majority had
flipped. And I think it was part of a context where members of
the Supreme Court were deeply concerned about the amount of
authority being given by Congress to the Executive Branch and
by the authority being exercised by the Executive Branch.
Since Myers and since Humphrey's, the court has just not
been very clear about the removal authority. In the most recent
case, Free Enterprise Fund, decided several years ago, the
court went out of its way to strike down the statute. It
assumed that the SEC Commissioners in the case had for-cause
removal protections, then used that fact to strike down the
for-cause protections for the PCAOB. Essentially, the court
went out of its way to strike down the statute. And they made
it clear that they weren't saying that Humphrey's Executor and
Morrison v. Olson were still good law. They made a point of
saying that the litigants haven't asked us to reconsider those
statutes or those cases. I think there are four votes on the
court right now to overturn Morrison and/or Humphrey's. There
could very well be a fourth, a fifth, depending upon what
happens to Mr. Gorsuch.
I will end by saying, if the statute is constitutional,
there is nothing that prevents Congress from amalgamating all
administrative power across all agencies and giving it to Mr.
Cordray, or to Mr. Deregulator, or whomever you want, and
telling that person, you now are responsible for all these
decisions, because there is no logical stopping point to the
statute.
Thank you so much.
[The prepared statement of Mr. Prakash can be found on page
68 of the appendix.]
Chairwoman Wagner. I thank the witness for his testimony.
Next, we will move on to Mr. Adam White. Mr. White is a
research fellow at the Hoover Institution, writing on the
courts and the administrative state. Prior to that, he was an
adjunct fellow at the Manhattan Institute, and he also
practiced law with Boyden Gray & Associates, writing briefs on
constitutional and regulatory issues.
Welcome, Mr. White. I look forward to your testimony.
STATEMENT OF ADAM J. WHITE, RESEARCH FELLOW, THE HOOVER
INSTITUTION
Mr. White. Thank you.
Chairwoman Wagner, Ranking Member Green, Financial Services
Committee Chairman Hensarling, and members of this committee,
thank you for the opportunity to testify.
The CFPB's structure is one of the most important
constitutional issues facing Congress today. When you debate
the CFPB's structure, you are debating the structure of the
21st Century administrative state in general. For nearly a
century, our administrative state was defined by the structural
decisions made by Congress from 1887 to 1914--that is, from the
creation of the Interstate Commerce Commission, to the creation
of the Federal Trade Commission. Those legislative precedents,
and the judicial precedents that followed, became the benchmark
for decades and decades that followed. When Congressmen,
Presidents, judges, and lawyers debated the administrative
state in the 20th Century, they debated within the lines drawn
by Congress decades earlier.
The Dodd-Frank Act radically changed that paradigm by
creating new forms of structural unaccountability. If Congress
or the courts do not reform the CFPB structure, then that
agency's structure will become the benchmark, the paradigm, for
decades to come. The next time someone proposes a new
independent agency, they won't model it on the Consumer Product
Safety Commission; they will model it on the CFPB. In fact, we
saw in 2010 and 2013, the Chair of the SEC and the Chair of the
CFTC calling for new funding structures to resemble the CFPB's
new structure.
The CFPB's unconstitutionality has been self-evident since
the moment it was created. Boyden Gray, my old boss, and John
Shu, raised these issues in a Federalist Society White Paper
soon after Dodd-Frank was enacted. And in 2012, Boyden and his
colleagues, including me, filed the first constitutional
lawsuit challenging the CFPB. For 6 years, the CFPB's
unconstitutionality has been highlighted in Congress, in legal
scholarship, and now, by the D.C. Circuit's three-judge panel
in the PHH case.
But as Justice Holmes once wrote, a page of history is
worth a volume of logic. The best evidence of the CFPB's
structural unconstitutionality is found in the CFPB's own
conduct: its lavish spending; its haphazard approach to
lawmaking; its refusal to take seriously the allegations of
racial discrimination in personnel decisions; its aggressive
collection of personal financial data; and its unapologetic
defiance of Congress, especially of this subcommittee. All of
those pages of history are symptoms of the CFPB's unprecedented
lack of accountability to Congress and to the President.
Given the recent change in Presidential Administrations, it
is natural to focus on the CFPB's measure of independence from
the President. But I would urge you to focus, first and
foremost, on the CFPB's independence from Congress, especially
its independence from your power of the purse. As James Madison
observed in Federalist 58, this power of 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, for obtaining a redress of every
grievance, and for carrying into effect every just and salutary
measure. Madison added that the power of the purse would be
Congress' best shield against ``all the overgrown prerogatives
of the other branches of the government.'' When the 111th
Congress gave away your power of the purse, it abdicated your
constitutional responsibilities, with all due respect.
So long as the CFPB is able to fund itself by calling up
the Federal Reserve and demanding its annual $600 million
entitlement, the agency will never take seriously any limits
placed upon it by Congress. Please do not wait for the courts
to fix Dodd-Frank, especially with respect to your power of the
purse. As Justice Jackson warned in the Steel Seizure case, in
the end, ``only Congress itself can prevent power from slipping
through its fingers.''
Thank you.
[The prepared statement of Mr. White can be found on page
81 of the appendix.]
Chairwoman Wagner. Thank you for your testimony. Our next
witness is Ms. Brianne Gorod. Ms. Gorod is the chief counsel at
the Constitution Accountability Center. Ms. Gorod previously
served in private practice as counsel for her firm's Supreme
Court and appellate practice. Prior to that, she was an
attorney adviser in the Office of Legal Counsel at the U.S.
Department of Justice, and served as a law clerk on the Supreme
Court.
Welcome, Ms. Gorod. We look forward to your testimony.
STATEMENT OF BRIANNE J. GOROD, CHIEF COUNSEL, CONSTITUTION
ACCOUNTABILITY CENTER
Ms. Gorod. Thank you, Chairwoman Wagner, Ranking Member
Green, and members of the subcommittee.
I would like to thank the subcommittee for inviting me to
assist its members and their colleagues in considering the
constitutionality of the Consumer Financial Protection Bureau,
which Congress created in 2010 in the wake of the devastating
financial crisis of 2008.
After months of evaluating the roots of the financial
crisis and assessing the types of reforms needed, lawmakers
concluded that a major culprit was the failure of a fragmented
and unaccountable consumer financial protection regime to
safeguard homeowners from reckless financial products. To
remedy this failure, Congress established the CFPB, a bureau
that would have the independence, the resources, and the
mission focus necessary to prevent a recurrence of those
problems and respond to the challenges of an evolving financial
marketplace. Since its inception, the CFPB has been incredibly
successful in achieving its aims of protecting consumers and
overseeing the financial sector.
Despite, or perhaps because of the CFPB's incredible
successes, it has come under repeated attacks, including claims
by its opponents that it is unconstitutional. In my remarks
this morning, I am going to explain why these arguments are all
wholly without merit.
First, the CFPB's leadership structure, namely, the fact
that it is led by a single Director removable only for cause,
is consistent with the text and history of the Constitution as
well as Supreme Court precedent.
We have already heard a lot this morning about the fact
that we have a single President. That is true enough. But that
doesn't answer the question of whether the President must have
unlimited removal power over all officers, no matter their
character and their functions.
In drafting the Constitution, the Framers gave Congress
considerable flexibility in determining how to shape the
Federal Government. Consistent with that constitutional design,
the Supreme Court held over 80 years ago that Congress may
choose to shield the heads of independent regulatory agencies
from Presidential removal at will. In that case, the Court
upheld a removal provision identical to the one governing the
CFPB Director.
The Supreme Court has repeatedly reaffirmed that principle
in the years since, including as recently as 6 years ago, in an
opinion by Chief Justice John Roberts. That precedent should be
the end of the discussion. But CFPB opponents argue that this
clear-cut precedent doesn't matter, because the CFPB is headed
by a single Director rather than a multi-member commission. But
that is a distinction without a difference. Indeed, that
distinction was not the basis for the Supreme Court decision.
The question under Supreme Court case law is whether the
removal provision impedes the President's ability to perform
his constitutional duty. And no plausible argument can be made
that leadership by a multi-member body would enhance the
President's ability to ensure faithful execution of the laws.
Quite the opposite. If the Bureau's leadership structure
had any significance to the constitutional question, this
factor would weigh in favor of a single Director because a
multi-member board serving staggered terms is, if anything,
less accountable to the President. The fact is, in the context
of the CFPB, the removal provision does not impede the
President's ability to faithfully execute the laws, because if
he determines the Director is abusing his office or committing
a breach of faith, the President may hold the Director
accountable by removing him, and that is all the Constitution
requires.
Second, there is no constitutional prohibition on the CFPB
being funded outside the congressional appropriations process.
Indeed, the CFPB is hardly alone in this. All but two of the
Federal financial regulatory agencies are funded outside the
congressional appropriations process.
Opponents of the Bureau argue that its independent funding
is prohibited by the appropriations clause, which provides that
no money shall be drawn from the Treasury, but in consequence
of appropriations made by law. But that clause is exactly what
it seems, simply a limit on withdrawing money from the Federal
Treasury. Because the Bureau's funding doesn't come from the
Federal Treasury, that clause is simply irrelevant. And there
is no other provision of the Constitution which prohibits
Congress from enacting funding structures for agencies that
defer from the procedures prescribed by the ordinary
appropriations process. It also bears emphasis that Congress
remains free to alter the CFPB's funding structure at any time.
Finally, Bureau opponents have argued that it is not only
unconstitutional, but also unaccountable, because, in their
view, its powers are unprecedented and unlimited. This, too, is
wrong. Leadership by a single director is a common feature
among agencies, and independent funding is the norm for
financial regulators. The Bureau is not the first agency to
combine those two features. The Bureau's powers are also hardly
unchecked. It is subject to an array of requirements and
procedural checks, and it shares regulatory enforcement
authority with other regulators.
In sum, the CFPB opponents' claims are wrong. The Bureau is
clearly constitutional, and it is accountable, and it should be
allowed to continue doing the important work of protecting
American consumers.
Thank you.
[The prepared statement of Ms. Gorod can be found on page
38 of the appendix.]
Chairwoman Wagner. I thank our witnesses for their
testimony, and without objection, the witnesses' entire written
statements will be made a part of the record.
The Chair now recognizes herself for 5 minutes for
questioning.
When I took an oath of office for my seat in Congress, I
swore to support and uphold the Constitution, alongside the
rest of my fellow Members of Congress. Just before Donald Trump
assumed the office of the President, he similarly swore to
preserve and protect and defend the Constitution. I take that
oath very seriously, and I believe the President does as well.
While we are holding a hearing and contemplating
legislation to identify and discuss how Congress should remedy
and restructure the issues that plague the CFPB, I believe the
President can also play a role and has an identical
responsibility to protect the Constitution and correct defects.
Mr. Olson, what are some of the things that you think the
President can do to fix the Bureau's structure in order to
uphold his constitutional obligation?
Mr. Olson. In my judgment, Chairwoman Wagner, the President
has the constitutional authority to remove the Director of the
Bureau, notwithstanding the limitations that are imposed in the
statute. We believe that those limitations are
unconstitutional, and that they strip the President of the
power to execute the laws.
If the entire administrative agency that this statute
creates can act without direction of the President and
completely separated from the President, the execution of those
19 broad-based statutes is out of the hands of the executive
created by the Constitution to enforce the law. Therefore, I
believe that the President has the power to remove that
individual in order to faithfully execute the laws.
Chairwoman Wagner. Many seem to think that the push for the
Director of the CFPB to be able to remove at will is an
entirely partisan exercise, but we have seen many bipartisan
examples in the past that supported the President's ability to
decline to enforce unconstitutional statutes.
The Clinton Administration, for instance, in the Office of
Legal Counsel memos, stated that, ``There are circumstances in
which the President may appropriately decline to enforce a
statute that he views as unconstitutional, particularly to
resist unconstitutional provisions that encroach upon the
constitutional powers of the Presidency.''
Mr. Olson, does the President's constitutional duty require
him to abide by a statute he views as unconstitutional that
encroaches upon the powers of the Presidency, such as being
able to remove the CFPB Director?
Mr. Olson. I believe the President has the responsibility
to the Constitution, not to an unconstitutional statute. I
served in the Office of Legal Counsel for nearly 4 years, 40-
some years ago, and I reviewed the opinions of the Office of
Legal Counsel that preceded my tenure there, and I have
reviewed opinions of the Office of Legal Counsel under other
Presidents in the years after.
The Office of Legal Counsel in the Justice Department
repeatedly has opined that the President has the responsibility
to protect the Constitution, and that is inclusive of
protecting the prerogatives and authority of the Congress and
the Executive Branch.
Chairwoman Wagner. Thank you, Mr. Olson.
Additionally, in 2012, regarding the ability of the
President to remove the CFPB Director, Barney Frank said, ``No
one doubts that if a change in administration comes and the new
President disagrees with the existing Director, he or she can
be removed. And proving that you were not inefficient, the
burden of proof being on you, would be overwhelming.''
Mr. Prakash, do you agree with Barney Frank, one of the
chief authors of the Dodd-Frank Act which created the CFPB, on
the ability of the President to remove the CFPB Director simply
with a change in the Administration?
Mr. Prakash. Thank you, Chairwoman Wagner. I do agree with
Chairman Frank. I see his picture back there. I think the
Supreme Court has never been clear about what cause requires.
And sometimes, they have read that requirement very broadly,
meaning the President has lots of authority to find cause; and
other times, they have read it narrowly.
But I also agree with Mr. Olson that, independent of that,
the President has a constitutional duty to disregard statutes
he believes are unconstitutional. That goes back to Thomas
Jefferson and his refusal to enforce the Alien and Sedition
Acts.
Chairwoman Wagner. Thank you, Mr. Prakash.
Quickly, Mr. White, does the President need to wait for the
courts to strike down a law as unconstitutional before deciding
whether to remove the Director?
Mr. White. No, he doesn't, either under the statutory for-
cause requirements, or under his constitutional authority. He
has a constitutional power and obligation to apply the
Constitution.
Chairwoman Wagner. Thank you. I see that my time has
expired.
And it is my pleasure now to recognize the gentleman from
Minnesota, Mr. Ellison, for 5 minutes.
Mr. Ellison. I would like to thank the Chair, and the
ranking member, and all of our witnesses today.
Disrupting realty cartels, taking action against captive
reinsurance, stopping illegal kickbacks during home sales, that
is what this case is about. PHH v. CFPB is a $109 million fine,
the largest fine CFPB has ever levied against a firm, because
of a kickback scheme. And, unfortunately, three witnesses here
today are defending a kickbacker, which I think is shameful.
Why does stopping these kickback schemes matter to the
American people? Because it makes it harder for people to buy a
home. We live in a country where we are proud of our great
middle class. Part of that means being able to get a home. The
behavior of PHH Corporation is directly oppositional to that
effort, in order to try to extract more money.
I am very concerned about the falling home ownership gap. I
am also concerned that millennials and African-American home
ownership rates are lower than usual. Part of the reason for
low home ownership rates is the high cost of housing and the
need to assemble enough money for a downpayment and closing
costs. When people buy a home, they quickly find out there are
many costs in addition to the price of the home. And if you are
not paying cash, you will need title insurance for a lender,
maybe title insurance for yourself. If you aren't putting down
20 percent, you are going to need private mortgage insurance,
maybe a homeowner's warranty.
Of course, buyers are usually unfamiliar with these
financial products. Unless you work in the industry, you
probably never heard of them before you tried to buy that
house. So home buyers rely on their REALTORS and lenders to
refer them to trusted partners. But for too long and too often,
some of these affiliations were really kickback schemes. And
that is what three of our witnesses here are defending, really.
There is a lot of high-floating rhetoric about the
Constitution and so forth. This is because the CFPB is standing
up for working people. That is it. This is the money versus the
many, plain and simple.
On the screen is a slide from the realty firms charged by
the CFPB of illegal kickbacks. They are up there right now. You
might ask, aren't kickbacks illegal? The answer is yes. There
is a piece of legislation called RESPA, which prohibits a
financial benefit for a referral. But for too long, that
prohibition has not been enforced.
Talking about things not being enforced, let's start there.
So lower desk rents, commissions, event tickets, or cash were
all provided to lenders, mortgage brokers, and real estate
firms and agents based on how many clients they sent over.
Are there any witnesses who feel that mortgage lenders,
REALTORS and bankers should be allowed to receive a financial
benefit for a referral? Raise your hand if you think a mortgage
broker, bank, or REALTOR should be able to receive a financial
benefit for a referral?
I see no hands.
Let's be clear. When borrowers are overcharged, it makes it
more likely that they will default on their mortgage. As a
Member of Congress, as a homeowner, and as a Member of Congress
who represents homeowners, I don't want to see people
overcharged, not when they buy their home, not when they use a
bank, not when they get a prepaid card.
Not only do I not want to see homeowners overcharged, I
don't want to see companies, like title insurance companies,
private mortgage insurance firms, et cetera, forced into costly
controlled affiliations in order to stay in business. Title
insurance and PMI companies should have the freedom to run
their businesses as they wish without having to give a kickback
for their referral base.
That is the market CFPB the is creating, a more fair
market, a better market for companies and people. And I know
that the hearing today is a very real legal conversation about
construction and funding for the CFPB, but I want the people
watching this broadcast, if they are, to know that that is not
really what this is about. This is about protecting a deeply
vested, incredibly profitable industry. That is what is
happening here. It is not about the Constitution; that is a
subterfuge.
Let's not lose focus about what the CFPB does. When
financial firms rip you off, the CFPB gets your money back, and
they need independence to do that. And that is what these three
men are opposing, and that is what Ms. Gorod is standing up
for.
I yield back.
Chairwoman Wagner. The gentleman yields back.
The Chair now recognizes the Vice Chair of the Oversight
and Investigations Subcommittee, the gentleman from Colorado,
Mr. Tipton, for 5 minutes.
Mr. Tipton. Thank you, Madam Chairwoman.
Mr. Olson, I appreciated your comments in regards to
separation of powers. Regarding the CFPB and funding decisions,
is the Director subject to any review by the Federal Reserve?
Mr. Olson. No.
Mr. Tipton. Is the Director subject to any review by either
of Congress' Committees on Appropriations?
Mr. Olson. No, that is not my understanding.
Mr. Tipton. Is the Director subject to any review by the
Office of Management and Budget?
Mr. Olson. No.
Mr. Tipton. Is the Director subject to any review by the
President?
Mr. Olson. No.
Mr. Tipton. Mr. Olson, perhaps you could describe for me,
with the importance of separation of powers, where is the check
and balance on the CFPB?
Mr. Olson. That is the important part of what you are
discussing here today. When agencies are created, the Framers
of our Constitution vested the power to create laws in
Congress; to enforce laws in the President; and to adjudicate
whether those laws have been violated in the Judiciary.
The Framers of the Constitution felt very strongly that if
you accumulated all those powers--the powers to create laws, to
enforce laws, and to adjudicate laws--in a single institution,
that would be the very definition of tyranny. That is why there
must be a check on the CFPB if you have that authority; for
executive agencies, the President, is responsible to you and to
the people with respect to the enforcement of those laws, and
then the Judiciary comes in with respect to enforcement of
those laws. If you break down that separation of powers, you
lose the very valuable thing that was created in 1789 to
protect us and protect our liberties.
Mr. Tipton. Do you view that really as dangerous, to have
an agency that is completely out of control of any authority by
Congress, and, apparently, to a degree, even the President?
Mr. Olson. It is very dangerous, because it is the very
definition of tyranny, according to what the Framers of our
Constitution describe, because you have to have accountability.
And when you don't, when you have an agency that is not
accountable to you with respect to appropriations, it is not
accountable to the President with respect to the enforcement of
policies, and then who can control that agency? No one can
control that agency. The way this agency was structured, the
President has no control whatsoever, and neither does Congress.
Mr. Tipton. We had a question that had been raised offering
you the opportunity to be able to raise your hand. Does anyone
on our panel believe that we shouldn't have separation of
powers, checks and balances, throughout our system?
No hands are raised.
We are seeing actually a fundamental agreement here that we
need to be able to have checks and balances within our system.
But when we are looking at the CFPB, we see an agency that is
completely out of control of the Executive and the Legislative
Branches.
We focused a lot, actually, on the President's ability to
be able to remove the Director with cause, which was never
actually defined, but, Mr. Olson, does it raise additional
constitutional questions in regards to the funding not being
under control by Congress?
Mr. Olson. It is an additional problem. The power of
appropriations is the core of Congress' responsibility in
addition to creating laws. And when you lose that power, you
lose control over the agency, so you cannot do that.
The statute also gives the CFPB--and it is in my written
testimony--additional powers, freedom to hire and fire its
employees without responsibility to other Federal laws, hiring
subordinates without having them approved by the Senate, which
other executive agencies have to do, and I could go on and on.
It is in our written testimony. Everything that Congress has
ever created to draw power away from the President and from
Congress is aggregated in this agency. It has all been put
together.
Mr. Tipton. So would an appropriate response be for
Congress to reclaim the power of the purse over the CFPB?
Mr. Olson. Yes.
Mr. Tipton. Thank you, Mr. Olson.
I would like to be able to maybe talk to Mr. White for just
a moment in regards to your testimony, getting back to some of
our community issues as well. You mentioned that the biggest
banks fare much better under the heightened compliance burdens
created by the CFPB regulations.
My rural district in Colorado is populated with Main Street
institutions, community banks, and credit unions. In your
experience, how well do these small institutions do under the
same compliance obligations as larger institutions?
Mr. White. I would say my experience is limited to my
former co-representation of a west Texas community bank that
challenged the constitutionality of Dodd-Frank. That litigation
is still pending. I am no longer involved in it. I have seen
how that bank and other small banks who can't afford armies of
lawyers, lobbyists, and compliance officers struggle to
shoulder the burdens of those costs.
I do agree with what Governor Romney said in his 2012
Presidential debate, that Dodd-Frank is the biggest kiss that
Wall Street ever received from Washington in that respect.
Mr. Tipton. Thank you.
I yield back, Madam Chairwoman.
Chairwoman Wagner. The gentleman yields back.
It is now my pleasure to recognize my good friend, the
gentleman from Missouri, Mr. Cleaver, for 5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman. And thank you,
Ranking Member Green.
We hear a lot about government and so forth, what it should
do. And sometimes I get the feeling that people are suggesting
that civil liberties are better off without government. I am
wondering, Mr. Olson, if you agree that the Constitution of the
United States defines who counts? Do you agree with that, yes
or no? The Constitution?
Mr. Olson. I am not sure I heard the last part of that
question.
Mr. Cleaver. Who counts? In the Constitution--if you read
the Constitution, do you come away with a better understanding
that in the United States, based on this document, who counts?
Mr. Olson. I am not understanding the question. I am not
hearing that one word.
Mr. Cleaver. Who counts?
Mr. Olson. Ultimately, the people, of course, count. And
the people have created a Constitution that separates powers
and creates accountability. In Federalist 70, Alexander
Hamilton talked about how it was important to focus executive
power in an individual, the President--
Mr. Cleaver. Okay. I am not going there.
Mr. Olson. --so that the President could be accountable to
the people.
Mr. Cleaver. Thank you very kindly.
Right at the beginning, all men are created equal. It
starts telling us who counts. That may be more theology than
political. But I think the Constitution--and I was in the
Middle East, and a guy was telling me, I don't know why African
Americans would be loyal to this country and so forth. I said,
look, we have a document, and it defines who counts; and in
this document, whether we have achieved it or not, I know that
the Framers wanted everyone to count.
So you agree with me, I think.
Mr. Olson. I think I agree with you. I think that it is
essential, and that the reason this Constitution has preserved
our liberty in this country for so many years, is that the
Framers of the Constitution thought very carefully about how to
hold accountable and who counts--
Mr. Cleaver. Okay.
Mr. Olson. --and to vest authority in places where they
could oversee it.
Mr. Cleaver. Okay, thank you. On who counts, you agree with
me.
Do you agree, Mr. White, that the might of any republic is
found in how it treats its vulnerable, yes or no? The might of
any republic is found in how it treats its vulnerable?
Mr. White. Yes, sir. And I think--
Mr. Cleaver. Thank you very kindly. I appreciate it.
Ms. Gorod, thank you for being here. Do you know anything
about the Federal Trade Commission?
Ms. Gorod. Just a little bit.
Mr. Cleaver. Do you know who appoints the--we actually call
them ambassadors, but who appoints the trade administrator?
Ms. Gorod. I believe the President does.
Mr. Cleaver. Yes.
Mr. White, do you know who can remove the Federal Trade
Commission?
Mr. White. Yes, sir, the President.
Mr. Cleaver. Thank you very kindly.
Can you tell me who, Mr. White, can replace the Director of
the CFPB?
Mr. White. To the extent that he can be removed, he can be
removed by the President.
Mr. Cleaver. Thank you very kindly.
You all have been so supportive of what I said today. I
appreciate it very much.
I yield back.
Chairwoman Wagner. I thank the gentleman for his
questioning. The gentleman yields back.
The Chair now recognizes a new member of our committee, the
gentleman from Indiana, Mr. Hollingsworth, for 5 minutes.
Mr. Hollingsworth. Good morning. And thanks, everybody, for
being here.
As she said, I am a new member here, and I come from a
business background, manufacturing specifically. And because of
that, I think about two different things all the time: results;
and processes. And it feels like that is a lot of the debate
that we are having here.
What I hear from my colleagues on the other side of the
aisle is that the CFPB is getting results, however they define
that, and a lot of them. But I think what matters to a lot to
us is making sure that we get results by the right process, and
making sure that we manage that process, because it has always
been my experience in manufacturing that when you focus only on
results and driving more through without an adherence to a
process, you end up with bad results, and results gotten
through misguided processes.
When they measure results, don't you think that we--and
this question will be to Mr. Olson specifically to start with,
but we can probably get more results if we just suspend the
Bill of Rights and make the CFPB power unlimited. They could
then get many, many more results, but I am not sure that we
would be satisfied or happy with the results. And certainly, I
don't think we would feel good about the trampling of our civil
liberties in the process.
But don't we think if we are just going to focus on
results, as my colleagues frequently talk about, that we might
be--that we could get more of them if we just suspended all of
the limitations on CFPB power, whatever they may be?
Mr. Olson. Absolutely. I totally agree with you. If you
eliminated elections, if you eliminated all of the structural
protections and the Bill of Rights, you could do whatever you
wanted to do. You would call that results. Over the long term,
the results would not be acceptable to the American people,
because our liberties and our freedoms are bedrock to our
constitutional system of government.
Mr. Hollingsworth. Mr. White?
Mr. White. I agree. And as the Framers indicated, the first
and foremost safeguard of our liberties is, in fact, the checks
and balances, the structural Constitution.
Mr. Hollingsworth. Absolutely. Again, I talk about
misaligned incentives a lot in my prior business career--if you
provide people the incentive to deliver in one metric alone,
without governing some of the how they get there, people will
find a way to do that. And I think in the CFPB's case, that is
certainly the case. In the way that they are funded and
elsewhere, we provided them incentive to take action, and let
that incentive somewhat unchecked. And because of that, we have
gotten some poor results.
And so, I guess--I know we have talked a little bit about
the constitutionality, but the process for getting back under
constitutional governance, walk me through some of the steps
that you would see, Mr. Olson, in terms of how we might pursue
that and what mechanically we can do to begin to get that
process back under control.
Mr. Olson. We would recommend that Congress restore the
President's power to control the subordinates in the Executive
Branch, those who enforce the law. Restore congressional
control over the budget of the agency, because that gives the
agency the responsibility to come to you and say, ``Here is
what we have done, here is how we are doing it, these are the
funds that we need in order to do it.'' You then ask the
questions. You conduct your oversight. That has been completely
removed.
We also made other suggestions in our written testimony,
but those are the two things that strike me as the most
important, because it is this body, the congressional body,
that controls and makes the laws and needs to have that
oversight. And it is the President, then, who has the
responsibility to see that it is done properly in accordance
with the laws that you enact.
Mr. Hollingsworth. Right. When I hear my friends across the
aisle talk about what counts, I think accountability counts.
And it really matters in setting up a system that reflects the
will of the people. And I know in my district, transferring a
little bit from my business career to the campaign of the last
18 months, what I heard over and over again from my
constituents was a grave concern of the expansion of a
bureaucracy, an expansion of a bureaucracy that has more and
more power over their lives, the power to shape their futures,
to determine the limits of their opportunities.
And they don't get any recourse. There is no means of
redress to those individuals. They can't call them up in the
same way they call me every single day to tell me they hate
what I am doing, they don't like what I am doing, or,
alternatively, that they love what I am doing and I should keep
going, right? And we need that level of accountability. And I
think much of what I heard in the last election was the feeling
like the officials they elect no longer have the power to shape
their futures, but it is, instead, the unelected bureaucracy
that continues to limit their futures.
And I hope that if we took anything away from the last
election, it was a feeling that the power needs to go back to
the people and their elected representatives that those people
are putting in office.
Thank you so much for being here.
Chairwoman Wagner. The gentleman yields back. The Chair now
recognizes the gentlelady from Ohio, my good friend Mrs.
Beatty, for 5 minutes.
Mrs. Beatty. Thank you so much, Madam Chairwoman. How much
I like saying that, like history.
And to my colleagues and the ranking member, and all of our
scholarly witnesses today, thank you for being here.
I believe in transparency. I believe in having someone
oversee or be a free-spirited, maybe you want to call it
independent watchdog for the least of these. I have had the
opportunity to read all of your testimonies, to read about your
background. So for my time, I am going to ask some yes-or-no
questions, because you are scholarly, and I know you will take
long answers and our time will run down.
So we are just going to go one, two, three, four, yes or
no. Okay? So are you aware that the Consumer Financial
Protection Bureau--and I am going to say that whole word every
time, because my colleagues oftentimes refer to it as ``the
Bureau.'' Now, I have a thought behind that. I think if you are
talking to America, like we do and you say ``bureau,'' most
people don't know what that is.
So maybe there is a reason that we don't say Consumer
Financial Protection Bureau. That sends a whole different
message to the Nation, that they may feel a little safer, they
may feel that there is someone protecting them. So I am going
to encourage everybody to have that education awareness and not
call it ``the bureau'' but to call it what it is, the Consumer
Financial Protection Bureau.
So with that said, are you aware of the $11.8 billion of
relief to consumers by the Consumer Financial Protection
Bureau?
Mr. Olson. I am aware of the statistic.
Mrs. Beatty. Yes. I take that as a yes. Right down the
line.
Mr. Prakash. Not until today, madam.
Mr. White. Not until today.
Mrs. Beatty. But you are aware. It doesn't matter--I don't
care if you learned yesterday, today, or 10 minutes ago. Are
you aware?
Mr. Prakash. As of now, yes.
Mr. White. Yes, I believe you.
Ms. Gorod. Yes.
Mrs. Beatty. Okay. How about $3.7 billion in monetary
compensation to consumers as a result of enforcement activity?
Mr. Olson. I am aware of those statistics.
Mr. Prakash. Yes.
Mr. White. Yes.
Ms. Gorod. Yes.
Mrs. Beatty. $7.7 billion in principal reductions, canceled
debt, and other consumer reliefs as a result of enforcement
activity?
Mr. Olson. Yes.
Mr. Prakash. Yes.
Mr. White. Yes.
Ms. Gorod. Yes.
Mrs. Beatty. $371 million in consumer relief as the result
of supervisory activity?
Mr. Olson. Yes.
Mr. Prakash. Yes.
Mr. White. Yes.
Ms. Gorod. Yes.
Mrs. Beatty. Did all of these yeses sound like great
things?
Mr. Olson. It depends upon how you get there.
Mrs. Beatty. Yes or no?
Mr. Olson. Not necessarily.
Mr. Prakash. I can't say.
Mr. White. I am happy to agree with you on these.
Ms. Gorod. Yes. And I hope I have the opportunity to
explain why--
Mrs. Beatty. Fifty percent of the people get it right. You
just agreed to four major things to disagree with yourself.
Welcome to the world of what I am in.
So here is the thing: We have these hearings--so let's go
now, move quickly to the whole issue of the Constitution.
So I will start with you, Mr. Olson. Do you think that the
constitutionality of a law passed by Congress is for a Federal
judge to decide? Yes or no?
Mr. Olson. It is not just for Federal judges to decide.
Mrs. Beatty. But is it for the Federal judges?
Mr. Olson. That is a part of the judicial--
Mrs. Beatty. So, that is a yes. Okay. Next?
Mr. Prakash. Yes.
Mrs. Beatty. Okay. Yes?
Mr. White. Yes, all three branches do, yes.
Mrs. Beatty. Okay. So to me, I agree. I would be a yes as
well. But yet we are in the middle of deciding the very
question with regard to the structure of the Consumer Financial
Protection Bureau. So that would mean, to me, by the scholars
and your responses, that that makes absolutely no sense.
So let me move quickly to a story that I read about you,
Mr. Olson, and I just want to say it publicly. I am in a house
of all lawyers. My husband told me a wonderful story about you
traveling and a young man was discriminated against. And while
he was a scholar and brilliant, he was African American. And
you stood up for him because you said we need to protect one
another, and we need people to be responsible for the least of
us and our brothers and sisters.
Is that a true story?
Mr. Olson. Yes, it is a true story. And thank you.
Mrs. Beatty. So I relate that kind of to what we believe
that the Director or the independent watchdog is protecting
those folks. And so that is one of the reasons I am a supporter
of the Consumer Financial Protection Bureau. And my time is up.
Thank you so much.
Mr. Olson. Thank you.
Chairwoman Wagner. I am very sorry that the gentlelady has
to yield back.
The Chair now recognizes another new member of the
Oversight and Investigations Subcommittee, the gentleman from
Tennessee, Mr. Kustoff, for 5 minutes.
Mr. Kustoff. Thank you, Madam Chairwoman.
Mr. Olson, first of all, thank you for being here, and
thank you for your public service to our country.
I have listened to everybody's statements about the
constitutionality and the structure of the CFPB, and without a
doubt, to me, it does seem that the structure, the way it is
composed is unconstitutional. Now, we can also debate the need
for the CFPB, but for our purposes today, if the President were
to come to you and say, Mr. Olson, I think there is some need
for the CFPB, but I want it to be structurally sound, I want it
to be constitutionally sound, can you paint a framework of what
you think the bureau would look like, how it would be composed?
Would there be one director? Would there be a panel of
directors? To whom would they ultimately be accountable? Could
you paint a general structure of what that would look like and
how it would be constitutionally sound?
Mr. Olson. Yes. I would suggest that the CFPB be a part of
the Executive Branch, created like an Executive Branch agency,
such as the Energy Department, such as the Justice Department,
such as the Treasury Department. Whether it be managed by one
individual or a panel of individuals, that it be responsible to
the President; that it be responsible to Congress in enforcing
the laws; that that agency, along with the White House and the
administrative branch and the OMB, would have to come to
Congress and justify its budget. And then you would pass its
budget, conduct oversight hearings over what it was going to
do, and supervise that agency, but hold the President
responsible for what that agency does.
And if that agency does--is abusive, then he is
responsible, not only to you in Congress, but also to the
electorate. But if he doesn't have the authority to make sure
that that agency is conducting itself in a way that is
consistent with the laws, he must be accountable. And the only
way he can be accountable, if he has the power to remove an
individual who is not following his policies.
Mr. Kustoff. To remove for any reason? To remove for a
reason or--
Mr. Olson. No. The President is elected to faithfully
execute the laws of the United States. He or she has to
determine the policies pursuant to which those laws are going
to be enforced. And the President must exercise that authority.
He doesn't have to have a reason to remove the Secretary of the
Treasury. And he shouldn't have to have a reason to remove a
member of the Executive Branch who has a responsibility to him
under the Constitution.
Mr. Kustoff. In other words, that director or that board of
directors would serve at the pleasure of the President?
Mr. Olson. That is correct.
Mr. Kustoff. Thank you, Mr. Olson.
I yield back.
Chairwoman Wagner. The gentleman yields back.
The Chair now recognizes the gentleman from Massachusetts,
Mr. Capuano, for 5 minutes.
Mr. Capuano. Thank you, Madam Chairwoman.
I want to thank the panel. I apologize for running in and
out, but, as you know, that is what we do here.
I guess--I would like to state, first of all, I guess it is
great to be here at another hearing. This is, to my knowledge,
the 63rd hearing we have had on the CFPB, and not one hearing--
actually, I take it back. One hearing. One hearing we had on
the impact of the CFPB that was related to Wells Fargo. Other
than that, we have never had any consumers here who have kind
of gotten it in the neck that the CFPB has protected, but we
will just keep doing hearings on it until we get tired of it.
I guess I would like to follow up on a couple of things.
First of all, Mr. Olson, look, you are a world-class lawyer,
you are a world-known lawyer. Is this a normal situation you
have heard of where the full court of a D.C. Court of Appeals
takes an en banc decision from a three-judge panel? Is that
normal? I know it happens.
Mr. Olson. It happens. It happens a few times a year.
Mr. Capuano. So it happens, but it is a little unusual?
Mr. Olson. It is unusual for any appeals court to hear a
case en banc, you are correct.
Mr. Capuano. Okay. That is what I expected, and that is
what I believe to be true.
I guess--I don't have to ask because I think you all know
that we have many people in the Federal Government who are
appointed for a term of years and can't be replaced without
cause. For instance, we just had a gentleman here--not in this
committee but another committee yesterday--saying that the FBI
Director is appointed for 10 years. Nobody complained about
that.
What about the Federal Reserve Board? They are appointed,
can't be removed. Should we be able to remove the FBI Director
like that? Should we be able to remove the Chair of the Federal
Reserve Board like that for political reasons? And I understand
the arguments for anything. But I am just curious, are those
two that you would also have us remove, Mr. Olson?
Mr. Olson. The FBI Director is removable and has been
removed by the President. Within the last 10 or so years, an
FBI Director was removed.
Mr. Capuano. For a cause. Mr. Comey just said he is going
to serve out the rest of his term.
Mr. Olson. We have heard a little bit about what cause
means under what circumstances, but the--
Mr. Capuano. I understand that. So you think the FBI
Director should be able to be withdrawn, be able to be fired
for political purposes? And that is okay. It is a good opinion.
I just want to--I'm curious about your opinion.
Mr. Olson. It is a good reason, if you hold the President
responsible.
Mr. Capuano. So you think he should. I get it.
Mr. Prakash, do you think that we should be able to fire
the FBI Director or the Federal Reserve Chair?
Mr. Prakash. Representative Capuano, I think you are
mistaken. The FBI Director serves at pleasure. President
Clinton removed the--
Mr. Capuano. I think you are mistaken. He serves for a term
of 10 years. He just said on TV the other day that he is
staying for another 6 years. I don't think he can say that
without some confidence.
Mr. Prakash. The term of office does not preclude removal
at pleasure. President Clinton removed the FBI Director without
cause.
Mr. Capuano. For a reason.
Mr. White, do you think we should be able to do it for
political reasons as well?
Mr. White. For policy reasons, disagreement over policy?
Mr. Capuano. Yes, the Federal Reserve Chair.
Mr. White. In my testimony, I point out that the Supreme
Court said in Bowsher v. Synar, they indicated that policy--the
policy--
Mr. Capuano. I guess--look, guys, simple questions. I
understand the argument that we should be able to do it. The
question is, should we be able to do it with everybody? And if
the answer is yes, that is a fair answer; it just happens to
not be the case.
And then there being--the point that I am trying to make is
there are clearly some people in the Federal Government that
Congress and the President have decided over the years should
not be removable for political purposes.
Now, I understand if you disagree with them. That is fine.
You come to Congress and you ask us to pass a law to change
that. That is fine. Thus far, my colleagues on the other side
haven't done that. And that is what you are here for today.
If I am not going to get clear answers, I guess I will just
finish off with Ms. Gorod. Do you think we should be able to
remove every Federal employee just for political reasons?
Ms. Gorod. Obviously not, and I think that underscores an
important point. The opponents of the CFPB like to pretend that
it is somehow anomalous or novel. And the fact is, there are a
number of other agencies that are headed by a single director,
there are a number of other agencies that have officers who are
removable only for cause, and it is not even the first agency
to combine those two features.
Mr. Capuano. Fair enough. I appreciate that. My time is
running out, so I have two more points to make.
First of all, for the people who are listening who don't
know this, what PHH was alleged to have done, was proven twice
now to have done--actually, three times, but that is a
different issue--is that they brought people in to give them
mortgages and then required them, for all intents and purposes,
to buy mortgage insurance from their company for kickback
purposes. They were caught at that charging people more,
charging people more for their mortgage if they didn't do it
and basically ordered to disgorge $109 million of
inappropriately gotten gains. Now, I understand that those are
facts that may be disputed in court, but at the moment that is
where we are.
So I want people at home to understand what we are talking
about. That is the case where consumers of--homeowners are
getting stuck to that you are defending.
Mr. Olson, last question, do you or your firm represent
PHH?
Mr. Olson. Yes, we do. And I came here to discuss the
constitutional question, not the issues involved in that case.
Mr. Capuano. I appreciate that. This doesn't strike you as
a conflict of interest that you are in court with a client that
is paying you--
Chairwoman Wagner. The gentleman's time has expired.
Mr. Capuano. --and you are here to talk about the issue
that they are in court about? I think that is a massive
conflict of interest.
Chairwoman Wagner. The gentleman's time has expired.
The Chair now recognizes a new member of our committee, the
gentleman from Michigan, Mr. Trott, for 5 minutes.
Mr. Trott. Thank you, Madam Chairwoman.
And thank you to the panel for being here.
And as an aside, what I just heard is a complete
misunderstanding of the conflict-of-interest rules as they
relate to the legal profession, but we will save that argument
for another time.
Ms. Gorod, I want to start with you. And in your testimony,
you wrote--and before I get into the constitutionality issues,
I want to talk about kind of the underlying reason for the
financial crisis. And in your testimony, you wrote: ``After
months of evaluating the roots of the financial crisis and
assessing different types of reforms needed, lawmakers
concluded that the major culprit was the failure of a
fragmented and unaccountable consumer financial protection
regime to safeguard homeowners from reckless financial
products.''
You wrote it. I assume you believe that. A lot of times
when we write regulations in Washington, we justify them by
saying we need to write these regulations because the private
sector has run amuck.
And I want to read an editorial from the Journal from 2011:
``Beginning in 1992, the government required Fannie Mae and
Freddie Mac to direct a substantial portion of their mortgage
financing to borrowers who were at or below the median income
in their communities. The original legislative quota was 30
percent, but HUD gives authority to adjust it. And through Bill
Clinton and George Bush, HUD raised the quota to 50 percent in
2000, 55 percent in 2007.''
So was the cause the mortgage-backed security in the
financial products that weren't well understood or was the
cause of these regulations that came to pass under Dodd-Frank
created by government action which created the crisis in the
first place?
Ms. Gorod. Congress spent a considerable amount of time
studying the causes of the financial crisis and concluded that
one of the major problems was the failure of existing
regulatory authorities to act because regulatory authority was
dispersed over a number of different regulatory agencies. They
decided that a new Consumer Financial Protection Bureau that
was headed by a single director, removable only for cause,
would be the best way for--
Mr. Trott. We will talk about that in a minute, but--so you
are saying that nothing happened in Washington that
precipitated the crisis. The idea that every American should
own a home when they shouldn't, that wasn't a major cause of
the crisis?
Ms. Gorod. I am saying that what Congress concluded was
that there was an absence of comprehensive and effective
regulation and that a way to address that would be to create
the CFPB.
Mr. Trott. Okay. Let's talk about the CFPB then. You wrote
in your testimony that, ``The court has explained that
assessing the constitutionality of a removal restriction is
whether the restriction impedes the President's ability to
perform his constitutional duty.''
And you are not bothered that the current regulation
impedes that because Dodd-Frank provides that the President may
remove the Director for inefficiency, neglect of duty, or
malfeasance in office. So you believe there are no
constitutional issues. Right?
Ms. Gorod. I believe there are no constitutional issues,
and the Supreme Court has repeatedly recognized that there are
no constitutional issues.
Mr. Trott. Right. And you talked about other agencies that
have directors who have to be removed for cause, right? And we
will talk about that in a minute.
So let me ask you, how would we go about making a case for
removing Mr. Cordray? We couldn't argue, if I was the
President, that he has been inefficient. The CFPB has been very
busy. We couldn't argue there has been a neglect of duty. Every
day, they come out with new charges against some financial
product or institution, so there is no neglect of duty.
So we would have to argue that there is some kind of
malfeasance, which is defined as the failure to discharge
public obligations existing by law, custom, or statute. So how
would we make a case if we wanted to remove Mr. Cordray that he
is somehow guilty of malfeasance? Could the President do that?
Ms. Gorod. I think I would perhaps agree with you that
there is no case to be made against Director Cordray. There is
no basis for removing him for cause. But the fact is that if he
did violate the for-cause provisions, then the President would
be able to remove him. And I think this is a moment to
underscore that the President has no authority to violate the
Dodd-Frank statute in contrast to what the other folks up here
have said.
Mr. Trott. Reclaiming my time, let's go to Mr. Olson's
testimony and have you explain how we would argue--let's take
Mr. Cordray out of it, because obviously you like him. Let's
just say there is someone there that you didn't like. And here
is their job description as defined by Mr. Olson: It is headed
by a single director who has broad discretion to enforce 19
Federal consumer protection laws, promulgate regulations,
litigate in the name of the Federal Government, punish private
citizens, all without any accountability to the President in
whom the Constitution vests executive power.
So with that broad authority, how could you ever argue
someone--you might disagree with what they are doing, but you
couldn't make an argument that they are guilty of malfeasance,
could you?
Ms. Gorod. I think there very well could be circumstances
in which one was guilty of malfeasance. I think there is no
evidence of that with respect to Mr. Cordray.
Mr. Trott. We are done talking about Mr. Cordray.
I want to ask Mr. Olson a question in my last 30 seconds.
So let's talk about due process for a minute. From my
perspective, what happened to PHH--and I know you are not here
to talk about that case, but it was a $6 million or $9 million
fine for Section 8 issues, and then all of a sudden the CFPB
swept in and said, no, really the fine is going to be $109
million.
How easy is it to fight the government? The government has
no budget in terms of its litigation expenses. The government
has no accountability in terms of when they decide not to
pursue a case or defend a case. So in your experience, sir--
forget PHH--isn't it a pretty unevenly balanced scale when you
have to litigate against the United States Government on a fine
that they are trying to assess against your organization?
Mr. Olson. I have been on both sides, in the private sector
and in the government. It is very, very difficult to fight
against the government because the government, essentially, has
unlimited resources and an unlimited budget. It is very hard
for a private citizen to--
Mr. Trott. My time has expired, but it is best if you just
pay the fine and move on because you are probably going to end
up losing even if you have to pay your own litigation expenses.
Chairwoman Wagner. The gentleman's time has expired.
Mr. Trott. Thank you.
Chairwoman Wagner. The Chair now recognizes the ranking
member of the full Financial Services Committee, the
gentlewoman from California, Ranking Member Waters.
Ms. Waters. Thank you very much, Madam Chair.
First, let me just say something to the Honorable Theodore
Olson, partner, Gibson, Dunn, & Crutcher. You don't know me. I
basically know you from the press. And despite the fact that we
don't know each other, I have absolutely lived with your pain,
based on the telephone call from your wife that was given wide
publicity. And so I want you to know that I would really like
to beat up on you badly today, but I am not going to do it
because of, not only what you have experienced, but because of
the Hollingsworth v. Perry case, the LGBT case that you were
involved in.
And so, basically, I think you are a superb attorney, a
fine lawyer, and you don't deserve to be in this position that
you are in today. It is beneath you.
Now, having said that, I am going to leave you alone and
tell you this: Dodd-Frank is extremely important and valuable
to this country. But the centerpiece of it is the Consumer
Financial Protection Bureau.
For us all to know and understand that the consumers of
this country literally had no protection, nobody speaking up
for them, nobody looking out for them prior to Dodd-Frank, is
for us to say, well, they deserve to have someone speaking up
for them and doing this job that was created in Dodd-Frank so
that they would never be in the position again where they were
being ignored, dropped off of America's agenda.
I don't know how anybody, my friends on the opposite side
of the aisle, could be against representation for consumers.
You know and understand what payday lenders have done to them.
You know and understand what debt collectors have done to them.
You know about student loans. You know about the automobile
industry and how it targeted communities and overcharged
interest rates on the people who could least afford them. You
know all of this.
And so for those who come in here supporting getting rid of
the Consumer Financial Protection Bureau and going along with
this argument about it is unconstitutional, et cetera, et
cetera, what are you doing, and why are you doing this? Are you
simply the tools of those who would exploit and those who would
commit fraud, those who would steal from the people who are the
most vulnerable in our country?
And so I take this time to admonish all of you who are
doing it. And I take this time to thank Ms. Brianne Gorod, the
chief counsel, Constitution Accountability Center, for being
able to be in a position to really talk about what our
Constitution is, what it is all about.
This three-judge panel, I ignore. I don't pay any attention
to that. And I am glad that that decision was vacated, because
I think in the final analysis, some of the right questions are
being raised.
And this PHH that you are representing, Mr. Olson, in my
estimation, does not have a leg to stand on.
And so all that I want to say is this: I am committed to
fighting as hard as I can for the Consumer Financial Protection
Bureau, and I consider that one of the most important fights of
my career. Starting out in the California legislature, it was
all about consumers and poor people and people who were being
ripped off in our society.
And I finally, here in the Congress of the United States,
got a chance to work on Dodd-Frank, served on the conference
committee, worked through some of the problems, worked through
getting consensus on some of the issues of Dodd-Frank. And I
and others are not about to allow it to be destroyed. And I
just want to continue my advocacy and my disappointment with
those who have shown less care and concern for consumers.
So with that, my time is up.
Mr. Olson, go do some of that fabulous work that you know
how to do. Get rid of this case. You are better than this.
Chairwoman Wagner. The gentlelady's time has expired.
Ms. Waters. Thank you. I yield back the balance of my time.
Chairwoman Wagner. The gentlelady yields back the balance
of her time.
It is now my pleasure to introduce another new member of
our O&I Subcommittee, the gentleman from Georgia, Mr.
Loudermilk, for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman, and thank you
for holding this hearing.
It has been very interesting, as I sit here and I listen to
a lot of the discussion that is going on. And I think, as we
started off, this is a constitutional discussion, at least from
those of us on this side of the dais here.
A quick question for Ms. Gorod: How did we get Dodd-Frank?
That was an act of the legislature. Right?
Ms. Gorod. That is correct.
Mr. Loudermilk. Which was in the purview of the Legislative
Branch to set public policy?
Ms. Gorod. That is right. The Constitution gives Congress
great flexibility to determine--
Mr. Loudermilk. So it was a law that was passed, and that
was our responsibility.
Mr. White, what is the responsibility of the Executive
Branch when Congress passes a law such as this?
Mr. White. To execute it insofar as it is constitutional.
Mr. Loudermilk. Okay. If there is a difference in the
opinion of what a law does between the Executive Branch who is
executing it and the Legislative Branch's original meaning, who
determines that?
Mr. White. Each branch has to determine for itself in light
of--
Mr. Loudermilk. But if there is a difference between the
interpretation of what was intended?
Mr. White. Oftentimes, these issues end up in court.
Mr. Loudermilk. And the Judicial Branch a lot of times
determines that.
Mr. Prakash, could you, really quickly, for the people
watching out here, tell us in layman's terms, what is Chevron
deference?
Mr. Prakash. Chevron deference is a doctrine from the
courts that says that courts should defer to the reasonable
constructions of statutes issued by agencies.
Mr. Loudermilk. So, basically, it says that if there is a
misinterpretation, then the agency determines what the
interpretation of the law is?
Mr. Prakash. And the way to put it is, if there is wiggle
room in the statute, the agency wins.
Mr. Loudermilk. Okay. And that is what I want to focus on,
Mr. Olson, is the Chevron deference here, because--and we know
that there is no single agency entitled to full Chevron
deference in the courts when there is multiple agencies that
have the ability to enforce that law, with the exception of the
CFPB.
And in your testimony, you stated that if the Director and
the President disagree on the interpretation of Federal
consumer finance law, the CFPB Director's view is accepted,
basically that the courts are told you have to listen to the
CFPB. Does that not give the CFPB Director more power than the
President over consumer financial protection law?
Mr. Olson. The way this statute and this agency is
structured, you are absolutely right. It is not just the
deference that courts will accord where a statute is ambiguous,
but the scale and the breadth of authority given to the
Director of this agency to decide what is fair, what is
reasonable, what is an abuse, and so forth. It is you who have
delegated to that agency an inordinately broad power of
legislative activity to decide what is right and what is wrong.
Mr. Loudermilk. Has any other agency, department head or
agency head, ever had that level of power?
Mr. Olson. I believe that the worst delegations of
authority to agencies is all wrapped up in this agency. So some
of the worst things that have happened in other agencies, there
are problems in other places, but the breadth of the authority
here and the lack of oversight and responsibility to Congress
and to the executive, I have never seen it in any other agency.
Mr. Loudermilk. So basically, what we are seeing with the
CFPB, as Ms. Gorod stated, that we have legislative power to
set policy. Mr. White stated the executive has a responsibility
to execute that, but there is a Chevron deference. So if there
is a difference, then the courts have to lean toward what the
agency says.
But in this case, basically the CFPB is given power above
the Judicial Branch because the Judicial Branch is told how you
must interpret, and the Legislative Branch because they can
interpret any way they want to. Is that a fair assessment?
Mr. Olson. It is not complete, because the courts can come
in and say, ``You have just gone too far, you have gone beyond
the statutes, you have interpreted things in the wrong way.''
That has happened. And this agency is subject to the judicial
oversight as well. But there is an awful lot of wiggle room, as
my colleague has put it, a tremendous breadth of authority
given to this agency and very little supervision.
Mr. Loudermilk. And in closing--I am running out of time--
at risk of sending a lot of people into a tizzy, which is okay,
I don't care, we have heard a lot of discussion about
corruption and all this.
Our Founders were very clear that separation of powers was
to prevent corruption. In fact, many times they cited a verse
of scripture, Jeremiah 17:9, that says men's hearts are
deceitfully wicked. Basically saying, left unchecked,
regardless of how good their intentions are, if you give power,
greed and ambition will override good judgment every time. That
is why we have brought the separation of powers in, and we have
totally run over that in the case of the CFPB. Would you agree?
Mr. Olson. I do. I agree.
Mr. Loudermilk. Thank you, Madam Chairwoman. I yield back.
Chairwoman Wagner. The gentleman yields back.
It is now my pleasure to recognize the gentlelady from New
York, Ms. Tenney, for 5 minutes.
Ms. Tenney. Thank you, Chairwoman Wagner.
And I thank the panel for being here today. It is an
extremely important hearing.
Like Mr. Hollingsworth, I too am a business owner and am
uniquely aware of the difficult access to credit for small
businesses, as I come from one of the poorest and highest taxed
districts in the Nation, in central New York. And I see the
CFPB as more of an obstacle. I respectfully disagree with my
colleagues.
I understand that Dodd-Frank has just given this--I deem it
unconstitutional, as someone who is also an attorney and who
has done a little work before the Federal courts in fighting
what Chevron has become.
And I know that you have answered many of the questions,
but I would just like to direct this to Mr. Olson, since I
commend you on your fine service and also I have had the
pleasure of actually reading some of your briefs before the
Supreme Court.
And I just wanted to know--we obviously know the structure
is a legislative delegation of power unchecked; you have
discussed all that. Can you just comment, if you can, about
where you think the future of the Chevron deference is going to
be? As you say, this unaccountable legislative delegation, the
courts can actually draw this back. But are the courts actually
doing that? Is that something we can--in your opinion, what
does the Supreme Court look like in the future where we can
actually start rolling back some of these overbloated
bureaucratic schemes and some of the overreach of power with
the CFPB?
Mr. Olson. It is very hard to predict, of course, what the
Supreme Court might do in a particular case. But I think there
is a widespread consensus that the Chevron doctrine, the
deference to decisions by administrative agencies interpreting
their own authority, has gone pretty far, maybe too far.
And when Congress gives broad discretion to administrative
or Executive Branch agencies, and then they decide to interpret
that authority in ways that are very, very expansive, the
courts perhaps should exercise a more scrupulous role in
disciplining that process.
Ms. Tenney. Don't you think that it would be, in your
opinion, a good thing for this to be rolled back into the
Executive Branch--I know you have sort of touched on this--so
that we can have oversight, the jurisdiction of the Oversight
Committee in addition to the Office of Management and Budget?
It just seems to me that this is just an out-of-control
agency, as a new member and someone who has seen what happens
in a State with a very large bureaucracy and a very large
Executive Branch that is somewhat out of control, and might I
add, sadly considered one of the most dysfunctional and most
corrupt legislatures in the Nation. But something I see
happening on the Federal level is this enormous bureaucracy
unchecked. So--
Mr. Olson. I agree with that. I think that it needs to be
brought into check--into the constitutional system.
Ms. Tenney. Right.
Mr. Olson. I think that Congress went way too far with this
agency, and it could be a model, as one of my colleagues said,
for legislation in the future. Why not roll the Justice
Department, why not roll the Treasury Department, why not roll
the EPA all into one agency and then give that individual
running that agency complete power to do what basically
whatever he or she wants to do? That is a very, very bad model.
It is a very unconstitutional model. As I said at the end of my
testimony, it is a constitutional nightmare.
Ms. Tenney. I agree wholeheartedly. Thank you so much for
your comments and for the panel today. I appreciate it. Thank
you.
And I yield back.
Chairwoman Wagner. The gentlelady yields back.
It is now my honor to recognize the chairman of the full
Financial Services Committee, Chairman Jeb Hensarling from
Texas, to testify and to ask questions for 5 minutes.
Mr. Chairman, you are now recognized.
Chairman Hensarling. Thank you, Madam Chairwoman. And thank
you for holding an incredibly important hearing.
The first thing that any Member does after they are elected
and they come onto the House Floor is they raise their right
hand and swear an oath to uphold and defend the Constitution.
Every Member has that personal responsibility. And they do it
under oath.
And so I want to thank you, Madam Chair, for having this
hearing so that Members can be enlightened as to this critical
debate on the constitutionality of this agency.
And it should not go unheeded that a three-judge panel of
the second highest court in the land has ruled it
unconstitutional. I don't know what is going to happen once the
entire court meets en banc. I don't know what will happen if
this is appealed to the Supreme Court. But very learned jurists
have found this to be an unconstitutional agency, and it is one
that we should take very, very seriously.
And unfortunately, as I listen to many arguments of my
friends on the other side of the aisle, what comes ringing
through is that somehow the ends justify the means, and that as
long as there is some noble purpose here, we should be
indifferent to the means by which we get there. But I don't
believe so.
So to some extent, I want to follow up on a line of
questioning, I think it was from the gentleman from Indiana,
Mr. Hollingsworth. But I will ask you, Ms. Gorod, if we
repealed Miranda rights, do you think that our criminal justice
system would receive more convictions?
Ms. Gorod. I don't think anyone is saying that the ends
justify the means. The position of--
Chairman Hensarling. That is not the question. The question
is, if we repealed Miranda rights, would we have more
convictions? Do you have an opinion on the matter? If you
don't, I will ask another witness.
Ms. Gorod. We might. But the point is--
Chairman Hensarling. Okay. We might. What if we repealed
the Fourth Amendment? Do you think we would have more criminal
convictions if we repealed the Fourth Amendment to the
Constitution? Do you have an opinion on that, Ms. Gorod?
Ms. Gorod. Again, we might. It is an empirical question.
Chairman Hensarling. Okay. Thank you.
So what we know is that we have numerous individuals,
companies, agencies that perhaps have been accused of misdeeds.
And what we have is our friends on the other side of the aisle
saying, don't you see all these fines? Don't you understand
that they must be guilty because they have been accused of
something?
I suppose if we started beating accused criminals with
rubber hoses, we might also have more convictions as well, but
that is not the point. The point is, what has happened to due
process? What has happened to due process under the law? Where
are our constitutional foundations?
And so the first question I have to ask--and we haven't
even gotten into the point of, is this agency on a net basis
actually helping consumers, when I see that all of a sudden
after its advent, free checking has been cut in half at banks,
bank fees are up, the ranks of the unbanked have increased, and
many of those who are pursuing auto loans are now paying more.
Under the qualified mortgage rule, fully implemented, one-third
of all Blacks and Hispanics will no longer qualify for a
mortgage, yet I hear no outcry from my friends on the other
side of the aisle. That is not me saying it. That is the
Federal Reserve.
So let's set aside for the moment the injury that this
agency has done to consumers, and let's just focus as Americans
who take an oath to the Constitution, let's look at due process
questions.
First, starting with you, Mr. Olson, as we erode checks and
balances, do you have an opinion on how due process is being
upheld currently at the CFPB?
Mr. Olson. One of your colleagues said that power corrupts,
and that is an aphorism that we have to live with. And the
reason that we have the checks and balances and the separation
of powers is to prevent that corruption from taking root and
abusing the rights of our citizens and taking away due process.
Chairman Hensarling. Mr. Prakash, do you have an opinion on
the matter? Have you observed how due process is being
practiced at the CFPB?
Mr. Prakash. Mr. Chairman, I am not here to testify about
the policy of having a CFPB. And I am not here to--I don't know
anything about the fines that were levied. I am making a purely
constitutional claim that I think should appeal to Republicans
and Democrats. If President Trump appoints Joe Deregulator and
decides to totally gut the CFPB, I would still be making the
claim I am making today.
Chairman Hensarling. Mr. White, do you have an opinion on
the due process issue?
Mr. White. I do think that the way the CFPB went about
asserting jurisdiction over auto dealers, auto loans through
informal guidance documents without the real rigorous work of
notice and comment rulemaking was troublesome.
Chairman Hensarling. Thank you. I appreciate your
testimony.
Chairwoman Wagner. The gentleman yields back.
The Chair now recognizes the distinguished ranking member
of the subcommittee, Mr. Green, for 5 minutes.
Mr. Green. I thank the Chair.
Mr. Prakash, you would have Morrison overturned. Is that
correct?
Mr. Prakash. Yes, sir.
Mr. Green. And Morrison, for edification purposes, is
styled Morrison v. Olson, is that correct?
Mr. Prakash. Yes, sir.
Mr. Green. And the ``Olson'' of whom we speak is the
``Olson'' who is seated next to you. Is this correct?
Mr. Prakash. Yes, sir.
Mr. Green. You decided that you would come to this hearing
today and give your testimony, understanding 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?
Mr. Prakash. I knew that Mr. Olson would be here today,
yes.
Mr. Green. Okay. And you agree that this is something that
is acceptable, to have the lawyer who represents a client with
a case pending to bring his cause before the Congress of the
United States of America?
Mr. Prakash. With all due respect, Representative Green, I
didn't think it was a problem. I assumed--
Mr. Green. But now that you are hearing it expressed, a
lawyer--do you think every lawyer ought to be able to bring his
client's case before the Congress of the United States of
America? Can you answer that, please, quickly?
Mr. Prakash. Honestly, I think it is up to Members of
Congress to decide who they want--
Mr. Green. I understand. So your opinion is that it is okay
for lawyers to bring their cases before Congress?
Mr. Prakash. I don't have any objection to it, and I don't
feel that I am doing something wrong.
Mr. Green. These records are forever, so that will be a
part of your legacy.
Let's go on to Mr. White. Mr. White, do you think it is
okay for lawyers to bring their cases before the Congress of
the United States of America?
Mr. White. I think all people should plead their cases to
Congress. Congress is the first branch.
Mr. Green. So you are of the opinion that every lawyer
should bring his client's case before Congress?
Mr. White. I think Congress stands to defend the rights of
all Americans, yes.
Mr. Green. All right. That takes care of your legacy.
Let's now go on to Ms. Gorod. Ma'am, do you find some
concern with bringing a case that is pending in Federal court
before the Congress of the United States of America?
Ms. Gorod. What I find most troubling are the assertions
that have been made. The assertion, for example, that the
President can violate the law which provides that the Director
can't be removed except for cause. I find troubling Mr. Olson
and the other witnesses' consistent ignoring of the numerous
checks and constraints that apply to the CFPB that help
demonstrate how accountable it is. So those are the things that
I find most troubling that have happened this morning.
Mr. Green. I understand they are most troubling. But don't
you find it troubling that a lawyer who is seated on this panel
with you has a client whose case is being discussed today?
Ms. Gorod. I am going to focus on the substantive remarks,
and I think they are deeply troubling because they are in
tension with our Constitution's text and history and with 80
years of Supreme Court precedent.
Mr. Green. Mr. Olson, I must tell you, I objected to the
hearing at the genesis of the hearing. I still object to the
hearing. I think it is entirely inappropriate that you would be
here, notwithstanding your storied history, notwithstanding all
of the good that you have done, that you would be here
representing a client who has litigation that is pending before
a Federal court.
The Congress of the United States should not be in the
business of providing oversight to courts. We shouldn't take up
these causes before they have been litigated. I think that what
you are doing is a disservice. It is really a disservice to
this country in the sense that we are creating this precedent.
And if it has been done before, it shouldn't have been done
then. I don't agree with this.
And if your client, Mr. Olson, is 100 percent right, what
we are doing today is 100 percent wrong. We ought not have
lawyers bring their cases, unless we are going to now have
every lawyer, every lawyer can petition Congress, has a case
pending in Federal court, let's have my case heard before some
subcommittee in Congress. I think it is entirely inappropriate
for this to occur.
And my hope is, Mr. Olson, that when this case is
finalized, that at some point you and I can have an additional
discussion about this, because I believe that this is an
appropriate thing for us to do, to talk about how we can
prevent this from happening again.
With that said, I know that there may be a second round, so
I will reserve my time for the second round. I yield back.
Mr. Olson. May I respond briefly?
Mr. Green. I will yield time to you.
Mr. Olson. I understand your point of view entirely. I want
to emphasize that I am here representing my own opinions, not
representing a client. These are my own views on separation of
powers, issues that I have spoken and written about for 50
years.
Mr. Green. Let me ask you this, Mr. Olson, so if you were
representing your client's views today--
Chairwoman Wagner. The gentleman's time has expired.
Mr. Green. --you would find that unacceptable, if you were
representing your client's views?
Mr. Olson. I am not here representing the client.
Mr. Green. I understand you are not, but if you were--
Chairwoman Wagner. The gentleman's time has expired.
Mr. Green. --would you find that unacceptable? Mr. Olson
finds unacceptable for what--
Chairwoman Wagner. The gentleman's time has expired.
It is now my pleasure to recognize a new member of our
Oversight and Investigations Subcommittee, the gentleman from
New York, Mr. Zeldin, for 5 minutes.
Mr. Zeldin. Thank you, Madam Chairwoman.
The ranking member is criticizing Mr. Olson's appearance
here because he says it would give his client an unfair
advantage, however, Ms. Gorod is also representing individuals
in the PHH case.
Ms. Gorod, I have some yes-or-no questions for you. First
off, you represented the ranking member and other Members of
Congress in proceedings before the D.C. Circuit in the PHH
case. Correct?
Ms. Gorod. That is right. I am here representing my own
views.
Mr. Zeldin. And in those proceedings, you argued on behalf
of the ranking member and other clients that the structure of
the CFPB was constitutional. Correct?
Ms. Gorod. Yes.
Mr. Zeldin. In fact, the essential premise of your legal
argument for why your clients should be allowed to intervene in
the PHH litigation was a fear that with the inauguration of
President Trump, only they would be positioned to adequately
defend the constitutionality of the structure of the CFPB.
Correct?
Ms. Gorod. Yes. I think it is important that this issue get
full review by the courts.
Mr. Zeldin. And you also are the counsel for an amicus
brief defending the constitutionality of the CFPB submitted by
21 former and current Members of Congress, some of whom are
here with us today, correct?
Ms. Gorod. That is correct.
Mr. Zeldin. So to be clear, you are here today testifying
that the CFPB structure is constitutional at the express
invitation of some of the very same Members for whom you are
defending the constitutionality of the CFPB structure before
the D.C. Circuit. Correct?
Ms. Gorod. That is right. That is an amicus brief, not a
party in the litigation.
Mr. Zeldin. Ms. Gorod, I am concerned that in this narrow,
and I would say fairly unique setting, your duty to zealously
represent your clients could be seen to conflict with your
ability to offer truthful testimony. Can you provide truthful
testimony?
Ms. Gorod. Yes.
Mr. Zeldin. It certainly appears that you are being paid to
represent Members' interests in court. Are you not representing
their interests before the committee today?
Ms. Gorod. I am not being paid by anyone to represent their
interest in court. We represent Members pro bono.
Mr. Zeldin. Okay. Are you being paid by your clients at
all? How are you being compensated for your time?
Ms. Gorod. I am part of a 501(c)(3) organization that is
funded.
Mr. Zeldin. Did you consult with the ranking member or
other members who are your clients or any of their staff
regarding your testimony today?
Ms. Gorod. Not in any specifics, no.
Mr. Zeldin. What was the conversation in generalities then
with regards to your testimony today?
Ms. Gorod. I am not sure I understand the question.
Mr. Zeldin. Okay. My question is, did you consult with the
ranking member, or other Members who are your clients, or any
of their staff regarding your testimony today?
Ms. Gorod. They knew that I was giving testimony.
Mr. Zeldin. Okay. But did you have--what were those
consultations with regards to today's testimony?
Ms. Gorod. I don't think there were any specifically about
the testimony.
Chairwoman Wagner. Will the gentleman yield?
Mr. Zeldin. Yes, Madam Chairwoman.
Chairwoman Wagner. I thank the gentleman for yielding.
Ms. Gorod, what is the role of government?
Ms. Gorod. The role of government?
Chairwoman Wagner. Yes. A simple question. What is the role
of government?
Ms. Gorod. There are many roles of government. They include
enacting laws to protect people and their individual liberties.
It includes passing laws to prevent crime and to enforce those
laws. I think it is not quite a simple question.
Chairwoman Wagner. The role of government, Ms. Gorod, is to
protect and preserve the individual rights and freedoms of the
people, as laid out in our Constitution, liberties that are
endowed by our Creator.
I yield back to the gentleman.
Mr. Zeldin. Thank you, Madam Chairwoman.
Ms. Gorod, what are your thoughts on listening to the
ranking member giving Mr. Olson a difficult time, saying that
there is an unfair advantage for his client, given the fact
that you are also representing individuals in the PHH case?
Ms. Gorod. I think there is a significant difference
between a party in litigation and amici, and I understand the
ranking member's concerns. I said my significant concern is
with the substance of the testimony that has been given because
I think it is inconsistent with the Constitution and with
Supreme Court precedent.
Mr. Zeldin. Yes. I think it is incredibly hypocritical on
the part of the ranking member to be giving Mr. Olson a hard
time and alleging that his client is going to be given an
unfair advantage while you are also representing individuals in
the PHH case. You are invited here to testify at this
particular hearing. You appear on behalf of current and former
ranking members in the PHH case, including Members who were
here at this committee.
I yield back.
Chairwoman Wagner. The gentleman yields back.
This concludes our--
Mr. Green. May I submit something for the record, with
unanimous consent, Madam Chair?
Chairwoman Wagner. Yes, without objection, it is so
ordered.
Mr. Green. All right. I would like to place in the record
an amicus brief that is in support of the rehearing en banc; a
statement from Americans for Financial Reform; a letter that is
addressed to the Chair from the Center for American Progress.
And indicate that the ranking member didn't ask for the
hearing. The ranking member responded to those who asked for
the hearing. The ranking member still disagrees with it.
I yield back.
Chairwoman Wagner. Without objection, those items will be
placed in the record.
Again, I would like to thank our witnesses for their
testimony today.
And, Mr. Olson, I want to thank you, since your former wife
was referred to today by the ranking member for her sacrifice
on September 11th and her untimely death, sir. It pains me
greatly as a friend of hers and as an American citizen.
I thank you all for your testimony today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned.
[Whereupon, at 11:59 a.m., the hearing was adjourned.]
A P P E N D I X
March 21, 2017
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