CFPB Previews Appeal Of Ruling That Its Structure Is Unconstitutional

Image courtesy of Adam Fagen

Last week, a split federal appeals panel ruled that the structure of the Consumer Financial Protection Bureau is unconstitutional because the Bureau’s sole Director can not be removed from office at the whim of the President. While the CFPB has yet to appeal this decision, a filing in a separate lawsuit provides a preview of the argument the Bureau could eventually make to try to overturn the ruling.

For those who spent last week in a medically induced coma, here’s what you missed: Mortgage lender PHH Corporation challenged a $109 CFPB enforcement action over alleged kickbacks from mortgage insurers. The company argued to the D.C. Circuit Court of Appeals that the single-director structure of the CFPB runs afoul of Article II of the U.S. Constitution, which details the executive branch of the federal government.

Two of the three judges on the appeals panel agreed, concluding that too much unchecked authority had been given to the CFPB Director, when compared to other federal agencies.

Many federal agencies have a chair that can not be removed by the President at will, but those chairs are just one of several (usually three to five) commissioners that ultimately have to work together to make important decisions. The FCC is one example of such an agency. For the President to remove a commissioner or chair before their term expires, there generally must be cause for dismissal.

On the other end of the spectrum are single-director agencies — like the Treasury or Justice Departments — with one person at the top. However, in those cases, the President can remove those directors at his or her discretion.

None of this is explicitly required or spelled out in the Constitution, but the majority of the appeals panel found that there was enough precedent to demonstrate that the President’s ability to remove, at will, the head of a single-director agency acted as a necessary check on the authority of agency directors. Therefore, ruled the panel, it is unconstitutional for the CFPB Director to hold such a powerful position without being immediately answerable to the President.

The appeals court allowed the CFPB to continue operating as usual — PHH and its supporters had hoped to have the entire Bureau rendered powerless — but under the condition that the Director can now be removed at the President’s discretion.

This decision is now playing out in other CFPB legal actions. In June, the Bureau sued a North Dakota-based payment processor Intercept Corp. for allegedly allowing its clients to illegally withdraw funds directly from consumers’ bank accounts.

Intercept recently brought the D.C. Circuit’s ruling to the attention of the North Dakota-based federal court where its case is being heard [PDF], arguing that this decision supports Intercept’s efforts to have the CFPB’s lawsuit dismissed.

But in its response [PDF] to this notice, the CFPB not only argues that the D.C. Circuit’s ruling has no direct bearing on the outcome of the Intercept case, but that the ruling itself “was wrongly decided” and “not likely to withstand further review.”

The CFPB contends that, rather than rely on existing law, the PHH panel instead “announced a new constitutional rule that agencies must be structured as multimember commissions if their heads are removable only ‘for cause’ rather than at the will of the president.” The Bureau claims that this principle “has no basis in the text of the Constitution or in Supreme Court case law.”

The Bureau argues that the D.C. Circuit based its decision on two things: The fact that there wasn’t an historical precedent for a single-director agency similar to the CFPB, and a “policy judgment that multimember commissions are superior to single agency heads.”

Regarding the need for a balance of powers, the Bureau says that the appeals panel failed to show that the CFPB’s structure “aggrandizes the legislative branch or diminishes the president’s ability to direct the operations of the executive branch.”

As the PHH ruling directly applies to the Intercept case, the CFPB points out that the North Dakota District Court — which is in the Eighth Circuit — is not bound by the decisions of an appellate court outside of the Eighth Circuit. Even if it were, the CFPB says the D.C. panel’s ruling is not yet final because the Bureau has not yet had the opportunity to appeal the decision to the full D.C. Circuit or to petition the U.S. Supreme Court.

[via National Law Journal]

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