Two Years Later: Dodd-Frank Still Unconstitutional & Bad for the Economy

This Saturday, July 21, marks the second anniversary of the enactment of the unconstitutional Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act which is an “unprecedented strangulation of our financial system,” says legislative attorney, Sarah Isgur Flores who was kind enough to pen the following Op-Ed exclusively for The Minority Report.

Sarah Isgur Flores, legislative attorney:

If you can legally go to a bar but are still living with your parents, you aren’t alone.  Close to 13 percent of Americans under 30 are unemployed—over four percentage points higher than the national unemployment average. Of this generation, 77 percent say that they have or will put off a major life change or purchase because of economic factors.  And now my fellow 20-somethings will be being forced to buy healthcare to subsidize an older generation that shackled us with the current debt crisis in the beginning. But don’t worry. We’ve been paying into social security, which 76 percent of us don’t think will exist when we retire.

And what has this administration done to help my under-30 compatriots? This week marks the second anniversary of the Dodd–Frank Wall Street Reform and Consumer Protection Act—an inauspicious occasion for liberty and for a generation that can’t afford more hurdles toward financial stability of their own.

In a misguided and byzantine attempt to prevent another Wall Street bailout, President Obama urged Congress to pass 2,300 pages of law requiring government bureaucrats to create 243 new regulations equal to thousands of pages in the Federal Register. I’m sure it will make for some fascinating bedtime reading in between job applications, but in the meantime it has triggered a regulatory crisis that once again burdens my generation.

So where does that leave you?

Maybe you graduated from public high school that was failing by every measure available. Of course, they couldn’t hire more qualified teachers because all the terrible ones have tenure and a full pension waiting for them whether you can read or not. And now you are trying to go to college. Well, Dodd-Frank is going to make it that much harder for you to get a loan now that your neighborhood bank is up to its ears in new pages from the Federal Register.

Maybe you decide to get a job to help pay for school yourself. Of course, you’ll need a car to get to work. But, oh wait: you can’t get a consumer loan for that either. Your neighborhood bank has now been put out of business because only the largest banks can possibly afford to hire the army of lawyers it takes to read—let alone comply—with the massive onslaught of Dodd-Frank regulation.

Now you’re on your bike. Good for the environment but bad for coworkers who don’t appreciate your new body cologne—au du humidity. Even that wouldn’t be so bad, but your employer isn’t offering you any benefits because it’s cheaper to just pay the penalty rather than provide the Cadillac coverage required by Obamacare. Of course, when you try to get your own insurance, you find out that this too has been regulated into oblivion by Dodd-Frank.

Now you might decide you can do it better than your boss anyway. Start your own company making widgets. I hope your business idea doesn’t involve goat herding. Or pretty much anything involving bake sales. Or an app on your iphone. Of course, as our President said, “if you’ve got a business—you didn’t build that. Somebody else made that happen.” So no need to bother with that idea.

And where does that leave you? Back at your parents’ house eating cheetos. Looking to vote for some congressmen and a president that have the moral courage to start repealing laws like Dodd-Frank that do nothing to help the economy and do everything to hurt a generation trying to come into its own.

By: Sarah Isgur Flores

More expert reaction:

Ammon Simon, policy council for the Judicial Crisis Network:

The Consumer Financial Protection Bureau and Separation of Powers

I’ve previously written about the constitutional challenge to the Consumer Financial Protection Bureau, a regulatory agency that tasks a czar-like director with interpreting our consumer-finance laws. The lawsuit and like-minded legislative reforms are based on separation of powers concerns, which many would rather ignore in favor of demagoguery. A recent article by John Gravois in the Washington Monthly, “Too Important to Fail,” does this, making it seem like the CFPB is the only thing standing between Main Street and Gordon Gekko and his Wall Street Raiders. This, of course, is false, for the best protections for consumers are clear regulatory outcomes and restraints on concentrated power.

Part of the constitutional challenge centers on Congress’s delegation of legislative authority to the CFPB. The CFPB can prohibit “abusive practices,” a subjective term that even director Richard Cordray admits is puzzling. Cordray has responded to this puzzle by interpreting “abusive practices” as he goes, essentially telling regulated companies that he’ll know a problem when he sees it. This leaves Cordray, a former partisan politician, with an expansive ability to decide basic policy questions typically reserved for Congress. These questions are endless. What type of practices will be abusive? Should the CFPB prohibit certain forms of credit, even if consumers turn to costlier alternatives? But don’t turn to Congress for help, ask the consumer-finance czar.

What’s surprising about Cordray’s insistence on case-by-case enforcement is that even Elizabeth Warren believes it is “too blunt” to use (and how can you disagree with Elizabeth Warren calling something too liberal?). But, instead of getting clear regulatory outcomes based on stable rules, we’re left with a roving consumer-finance protector. This isn’t just a theoretical problem, it creates practical problems; some businesses might discontinue their consumer financial products rather than risk facing uncertain liability. This has already happened with Big Spring National Bank, a plaintiff in the constitutional lawsuit, which discontinued its mortgage lending rather than risk liability under the broad “abusive practices” umbrella.

Congress has also purposefully limited the president’s ability to fire the CFPB director, removed Congress’s appropriations power over the bureau, and narrowed judicial review over its rule-making. This only amplifies the CFPB’s constitutional problems. For Gravois, this scant oversight is a strength, and reducing the CFPB’s independence would make the CFPB “more accountable to congressional committees and the industries that comfortably influence them.” But, bureaucrats can never have robotic objectivity, or free themselves from the influence of special-interest groups.  And even if industries were non-influential, this would not guarantee sound regulations. Instead, it would just free the regulatory process from one special-interest group’s influence in favor of another.

Even if concentrating power in the CFPB could mean better policies, a larger issue is at stake: separation of powers. Our Founders made power difficult to wield because they did not trust unchecked power. While the CFPB’s design removes oversight from the purview of the three government branches, separation of powers spreads oversight power over three branches. For, as Madison in Federalist 47 says, “The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, self-appointed, or elective, may justly be pronounced the very definition of tyranny.”

Separation of powers provides recourse to fix another branch of government’s mistake. The CFPB removes that recourse, refusing to recognize that the difficulty in manufacturing cooperation between three branches of government is by design. As Free Enterprise Fund v. PCAOB (2010) explains:

And while a government of “opposite and rival interests” may sometimes inhibit the smooth functioning of administration.. “[t]he Framers recognized that, in the long term, structural protections against abuse of power were critical to preserving liberty.” (citations omitted).

Joe Malchow, publisher of the Power Line blog

All legislation that constrains how companies can invest the money they’ve earned is expensive—to the companies, and to people who hope to get jobs there. So on the second anniversary of the passage of the Dodd-Frank Act, we are forced to come to terms with the fact that this Act has been ruinously expensive to our economy. We are not in recovery. PIMCO’s Bill Gross recently said we may well be in recession. The weighty cost of Dodd-Frank is partly to blame. Americans might have been willing to put up with that cost—if Dodd-Frank worked to prevent future financial crises. But it doesn’t work. And, what’s more, it’s unconstitutional.

We were told by President Obama and Democrats in Congress that Dodd-Frank made our financial system stronger. It’s hard to see evidence of that, mostly because it isn’t true. Instead Dodd-Frank merely invested new government agencies with unprecedented and unconstitutionally broad power to shut down even healthy companies and to control the “fairness” of financial products, like loans and credit cards, that we use in our daily lives. The only jobs created by Dodd-Frank are jobs for yet more mediocre D.C. lawyers.

Our Constitution was crafted to forbid such private-sector rapine as Dodd-Frank. Checks and balances ordinarily operate so that Congress, in the budgeting process, can review what an agency does. But one of Dodd-Frank’s new agencies—the one that will decide whether your credit card is “fair,” in the process making your credit card more expensive—short-circuits Congressional budget review. That’s unconstitutional. Or consider the judiciary. When the government does wrong by us, we imagine that, if it comes right down to it, we can get our point of view in front of a judge. Not so, with Dodd-Frank. Courts’ review of the agency’s legal interpretations cannot be reviewed by a judge. The constitutionality of Dodd-Frank is now being tested in court, and we will see if once again the principles of limited government—which gave rise to the wealth we have today—can save the day by destroying Dodd-Frank.