Wednesday, March 24, 2010
Senator Chris Dodd last week introduced his financial reform bill, including his version of a consumer financial protection agency to regulate the financial services industry and "to protect consumers from abusive financial services practices." In contrast to the House version, which includes a new stand-alone Consumer Financial Protection Agency, Dodd's Bureau of Consumer Protection would be housed within the independent Federal Reserve. (See Section 1001, et seq., of the bill.)
The independence of the regulatory agency, whatever it's called, matters to the (Democratic) policy-makers: The more independent, the better. (Dodd's move to place his Bureau within the Federal Reserve may have been the result of a compromise with Republicans on the measure. House Democrats seem to favor a stand-alone agency.)
But the debates over the proposals raise the question: What does it mean to be "independent"?
One measure of an agency's independence is the President's power to remove agency personnel. Thus challengers to the Public Company Accounting Oversight Board, created by Sarbanes-Oxley, focused almost exclusively on the President's removal power (or lack thereof) in arguing last December before the Supreme Court that the Board violated the Appointments Clause and separation-of-powers principles. Under Sarbanes-Oxley, Board members can be removed for cause only by the SEC, which itself can be removed only for cause by the President. According to challengers, this so-called "double for-cause" protection unconstitutionally insulated Board members from Presidential control.
But the President's removal power is only one measure of independence. Dodd's Bureau illustrates this well. While the director and deputy director of the Bureau would enjoy 5-year terms, removable only for cause, and while the Bureau would be located within the Federal Reserve (characteristics suggesting dependence), the Bureau would also have its own qualified rule-making authority and its own enforcement authority (characteristics suggesting independence). (The Wonk Room helpfully compares the Senate, House, and administration proposals here.) Surely each of these characteristics (and not just the President's power to remove Bureau members) would be relevant in assessing the Bureau's "independence"--and its constitutionality under the Appointments Clause and separation-of-powers principles. This, in fact, is what the government argued in the PCAOB case.
The debates over the appropriate level of independence for a new consumer financial regulatory agency are helpful reminders, soon after the PCAOB arguments, that multiple characteristics (and not just the President's power to remove officers) define an agency's independence, and its constitutionality.