Today, the Federal Reserve is at a critical juncture in its evolution. Unlike any prior period in U.S. history, the Fed now faces increasing demands to expand its policy objectives to tackle a wide range of social and political problems—including climate change, inequality, and foreign and small business aid.
This Article develops a framework for recognizing and identifying the problems with “central bank activism.” It refers to central bank activism as situations in which immediate public policy problems push the Fed to aggrandize its power beyond the text and purpose of its legal mandates, which Congress has established. To illustrate, this Article provides in-depth exploration of both contemporary and historic episodes of central bank activism, thus clarifying the indicia of central bank activism and drawing out the lessons that past episodes should teach us going forward.
This Article urges that, while activism may be expedient in the near term, there are long-term social costs. Activism undermines the legitimacy of central bank authority, erodes central bank political independence, and ultimately renders a weaker central bank. In the end, this Article issues an urgent call to resist the allure of activism. And it places front and center the need for vibrant public discourse on the role of a central bank in American political and economic life today.
Rent-A-Bank: Bank Partnerships andThe Evasion of Usury Laws
Adam J. Levitin
“Rent-a-bank” arrangements are the vehicle of choice for subprime lenders seeking to avoid state consumer protection laws. In a rent-a-bank arrangement, a nonbank lender contracts with a bank to make loans per its specifications and then buys the loans from the bank. The nonbank lender then claims to shelter in the bank’s federal statutory exemptions from state regulation. The validity of these arrangements is the most bitterly contested legal question in consumer finance.
The rent-a-bank phenomenon is a function of a binary, entity-based regulatory approach that treats banks differently than nonbanks and that treats bank safety-and-soundness regulation as a substitute for consumer protection laws. The entity-based regulatory system is based on the dated assumption that transactions align with entities, such that a single entity will perform an entire transaction. Consumer lending, however, has become “disaggregated,” so the discrete parts of lending—marketing, underwriting, funding, servicing, and holding of risk—are frequently split up among multiple, unaffiliated entities.
The binary, entity-based regulatory system is a mismatch for disaggregated transactions involving a mosaic of bank and nonbank entities. The mismatch facilitates regulatory arbitrage of consumer protection laws through rent-a-bank arrangements, as nonbanks claim favorable regulatory treatment by virtue of the involvement of a bank in parts of a transaction.
Courts’ attempts to address such arbitrages have resulted in an unpredictable doctrinal muddle. This Article argues that the best approach to disaggregated lending is a presumption that the privileges of a banking charter do not extend beyond banks, coupled with an anti-evasion principle that looks to substance over form and captures rent-a-bank transactions based on derivatives rather than outright sales of loans. Such an approach would create greater certainty about the legality of transactions, while effectuating both state consumer protection laws and federal bank regulation policy.
That probably seems like a bizarre Craigslist ad. It’s not real—we mocked it up for this article. Still, and startlingly, it accurately portrays what’s happening in the Waco Division of the U.S. District Court for the Western District of Texas. One judge, appointed to the Western District only three years ago, has been advertising his courtroom through presentations to patent lawyers, comments to the media, procedural practices, and decisions in patent cases as the place to file a patent infringement lawsuit. That advertising has succeeded. In 2016 and 2017, the Waco Division received a total of five patent cases. In 2020, nearly eight hundred patent cases—more than 20 percent of all patent cases nationwide—were filed there.
The centralization of patent cases before a single judge, acting entirely on his own to seek out patent litigation, is facilitated by the Western District’s case filing system, which allows plaintiffs to choose the specific judge who will hear their case. These dynamics—a judge advertising for patent cases and plaintiffs shopping for that judge— undermine public confidence in the impartiality of the judiciary, make the court an uneven playing field for litigants, and facilitate the nuisance suits patent trolls favor. Two common-sense reforms would reduce the harms of judge shopping: (1) district judges should, by law, be randomly assigned to cases, and (2) venue in patent cases should be tied to divisions within a judicial district, not just the district as a whole.
To protect U.S. user data from foreign threats, presidents have wielded their emergency power to ban transactions with certain technology companies. This emergency power, if unchecked, threatens both the procedural rights of some technology companies and U.S. constitutional structure.
Concerning procedural rights, this Note evaluates existing procedural due process jurisprudence to identify the scope of these protections in the data security context, which remains unexplored in scholarship and judicial opinions. For guidance, this Note looks to cases involving counterterrorist financing and national security reviews of foreign investment, and it concludes that procedural due process protects many technology companies that collect personally identifiable information. In particular, due process requires the government to provide these companies with meaningful notice and an opportunity to respond before the president wields emergency powers that slash these companies’ economic interests. These predeprivation procedural rights significantly safeguard affected companies by giving them time to respond.
However, due process alone will not prevent the emergency executive from running roughshod over the Constitution’s system of checks and balances. This Note argues, as have many commentators, that Congress should recalibrate the balance: Congress should amend IEEPA to include a sunset provision that would limit the duration of any national emergency until Congress affirmatively votes to extend it through a fast-track process. Ultimately, procedural due process and political process must work hand in hand to protect both constitutional rights and structures.