A federal agency created under the Dodd-Frank Act unconstitutionally gets to determine its own budget.

In 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed and signed into law. In our copy, the act has 833 pages. Portions starting on page 573 and running almost to the end create the Bureau of Consumer Financial Protection (BCFP).

The bureau was created to operate with no presidentially appointed head. For that reason and many others, many people objected to its creation and function. But in a case with over 60 major plaintiffs, including14 states, a federal court found that none of the opponents of the BCFP had standing to make such claims. In summary, the court said that the bureau had not acted in ways the opponents disliked and there was no harm to actually or potentially remove; hence no standing to bring a case. (See State National Bank of Big Spring, et al. v. Lew, no. 12-01032, D.D.C, filed July 12, 2012).

Thus, despite these objections, and others, the BCFP has proceeded to operate as it was laid out in the Dodd-Frank Act.

The bureau was recently in the news when the director of the agency quit and sought to replace himself with his self-appointed deputy director. President Trump objected, arguing that an agency should have a presidential appointee as its head and installed his own acting director, Mick Mulvaney. To date, the courts have sustained him as the current head of the bureau.

Under the law, the bureau operates under many unique conditions, including its funding mechanism. Dodd-Frank Act Title X Section 1017 provides that the BCFP shall have as its revenue whatever amount the director states he desires “to be reasonably necessary to carry out the authorities of the bureau under federal consumer financial law” (Section 1017 (a)(I)) so long as that amount is at or under 12% of the total Federal Reserve System budget for each year. It also states that the Congress under Section 1017 a(I)(C) that “the funds derived from the Federal Reserve System pursuant to this subsection shall not be subject to review by the Committees on Appropriations of the House of Representatives and the Senate.”

The federal Constitution says appropriation bills must originate in the House of Representatives. Specific purposes for appropriating and applying funds are limited to those enumerated in Article 1, Section 8. In a document to Congress on how appropriations work, two prominent analysts (Bruce Fein and Louis Fisher) told new members of Congress that “All three branches have a number of implied powers, provided they are reasonably drawn from enumerated powers. For example, Congress has the express power to legislate. To do that in an informed manner, it needs the implied power to investigate.”

Fisher and Fein were referring to the “necessary and proper clause” found at the end of Article 1 Sec. 8 when they referred to “implied powers.”

“To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.”

Thus, Congress not only has the power to appropriate funds and direct how they are spent, but to investigate in fact what is being spent, and how it is spent. The ability to investigate what is being spent and how it is spent is thus also a part of the direct power to appropriate funds, and is thus part of the direct powers of Congress.

Following this line of thinking, the Dodd-Frank Act at Section 1017 is unconstitutional. The Dodd-Frank Act was presented simply as a law. It was indeed passed by both Houses of Congress and signed by the president. But Section 1017 limits that authority of future congresses because it amends constitutional allocations of appropriations by severely limiting how they can be carried out.

Nothing in the Constitution authorizes Congress to pass the buck. It cannot delegate its constitutional powers to other entities, including the heads of departments it creates.

Constitutionally limiting the authority of the Congress requires under federal constitution Article V that:

The Congress, whenever two thirds of both Houses shall deem it necessary, shall propose Amendments to this Constitution, or, on the Application of the Legislatures of two thirds of the several States, shall call a Convention for proposing Amendments, which, in either Case, shall be valid to all Intents and Purposes, as Part of this Constitution, when ratified by the Legislatures of three fourths of the several States, or by Conventions in three fourths thereof, as the one or the other Mode of Ratification may be proposed by the Congress; …

Limiting the authority of the committees of Congress to even review, let along discuss or change, and in this case even know “officially” about, an allocation of funds subject to the appropriations process, thus seriously limits the powers of Congress. Simply placing this change of powers of Congress into a simple Act avoids the requirement for two-thirds of the states to agree to any such changes in the powers of Congress.

As we saw in the above-cited court case, almost a third of states already objected to other parts of the act. We can thus be sure there is at least some likelihood, probably a high likelihood, that two-thirds of the states might not accept this amendment to the federal Constitution. But since the amendment was not even proposed to the states, at least this section, and possibly more of the Dodd-Frank Act can be removed with proper court processes.

References: Paul Ballonoff, 2016, Limiting Federal Regulation

Image by Ted Eytan, Flickr – under a Creative Commons 2.0 license.

Paul Ballonoff

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