Hal Scott's Call for a Presidential Ukase on the CFPB

Hal Scott is at it again, calling for President Trump to shut down the Consumer Financial Protection Bureau by executive order. Scott's logic here is that (according to him) the CFPB has not had a legal basis for its funding in recent years, so the President would simply be "tak[ing] care that the laws be faithfully executed" by standing down the agency's activities for lack of proper funding, even if the agency would still continue to exists on paper. 

If Scott's first argument about the CFPB's funding was farcical, this one is a downright dangerous argument for upending the balance of the constitutional system by giving the President the unilateral power to arbitrarily decide what parts of government operations are legal.

Scott's newest call for Presidential action is based on his tendentious and result-driven textual argument that the CFPB is operating illegally because it is funded out of the "combined earnings of the Federal Reserve System," which Scott interprets to mean the profits of the Federal Reserve System, such that the CFPB has a statutory right to funding only in years when the Federal Reserve System runs a profit, which it has not of late. I've previously addressed how ridiculous this statutory argument is; it's pretty clear that "combined earnings" means gross earnings, not net earnings. It's also absurd to think that Congress wanted the CFPB to operate, but only in those fiscal years in which the Fed made an accounting profit; unfair, deceptive, or abusive acts and practices are just fine when the Fed is losing money.  It's hard for anyone to fairly get to Scott's reading of the statute without being seriously motivated. 

Notably, in his latest screed, Scott fails to mention that no court has yet to embrace his view about the legality of the CFPB's funding. Only three courts have even touched on the issue, and not one of them has been swayed by Scott's argument. You can find a deep dive in the opinions here, but the tl;dr is that although the rulings haven't been squarely on the merits, courts have shown zero interest in Scott's argument.

• In the District Court for the Central District of California in CFPB v. Solo Funds, dismissed the argument in a cursory fashion, noting the defendant hadn't "persuaded the Court that the Bureau's source of funding—even if illegitimate—is grounds for dismissal."
  
  
• In CFPB v. Active Networks, the Eastern District of Texas denied a motion to dismiss predicated on the funding issue, among other things. It thought so much of the argument that it dismissed it and the defendant's other three arguments out of hand in a single sentence.
• And in Texas v. Colony Ridge, the District Court for the Southern District of Texas—hardly a friendly locale for the CFPB—a magistrate judge similarly noted that whether an agency is lawfully funded does not inherently affect its lawful ability to act. What's more, the magistrate judge noted, "the Supreme Court found that the CFPB is constitutionally funded—and it did so during a time when Colony Ridge argues the CFPB was not funded." If Hal Scott can't win in the SDTX, it's hard to imagine his argument having legs in any other court.

So this is what Hal Scott is really arguing:  that the President of the United States can unilaterally shut down an entire federal agency based on an farfetched and so-far unsuccessful legal argument about the statutory legality of the agency's funding. In other words, according to Scott's position, there is no presumption about the legality of federal agencies, but rather the President alone gets to make the call.  There does not need to be an adverse legal ruling, indeed there does not even need to be a legal opinion from the Office of Legal Counsel at DOJ. It's enough if the President decides to believe the theories of a retired professor. 

What's scary here is that there is no limiting principle to Scott's argument. I don't think Scott has thought this far down the line, but based on his logic, if the President were tomorrow to decide that he wanted someone to rid him of a meddlesome agency, all that would be required would be for the President to allege that the agency's funding was somehow illegal (because it's Monday?) and therefore order that the agency cease all activity through an ukase. The President would never have to state what his legal reasoning was, much less put his legal argument to the test in some court before doing so. It wouldn't matter how ridiculous the President's legal theory was. It wouldn't matter that Congress had duly authorized the agency and provided for its funding in a manner it believed to be legal. Nor would it matter that the agency had operated for years without question on the issue. And it wouldn't matter that no court had ever indicated that there was a legal concern about the agency's funding, much less that the Supreme Court had recently signed off on the agency's funding in the context of a different legal challenge. 

Nor is Scott's argument even limited to issues of funding. Suppose the President were to decide to rid himself of turbulent Air Force generals by arguing that the Air Force is not specifically authorized in the Constitution (whereas the Army and Navy are, so inclusio unius etc.). Under Scott's logic, all the President would have to do is issue an executive order ordering the Air Force to cease all activities and viola, no Air Force! 

Scott dresses up his argument in the framework for a call for the President taking care that the laws are faithfully executed. But make no mistake. It is not a call to heed the law, but a call for the President to ignore the law based on his own arbitrary whim, usurping the powers of both Congress and the judiciary. I understand that some financial services firms would prefer not to deal with the CFPB, but Scott's argument takes us to a place where it is hard for anyone to do business.

 

Comments

[jo6pac]

Sadly it's only going to get worse