Consumer Financial Protection Bureau Challenges Ruling That Its Structure Is Unconstitutional

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Last month, a split three-judge panel of the D.C. Circuit Court of Appeals ruled that the structure of the Consumer Financial Protection Bureau is unconstitutional as it puts too much authority in the hands of one person. Now the CFPB is challenging that ruling, petitioning for a review of the matter by the full D.C. Circuit, in what the Bureau claims “may be the most important separation-of-powers case in a generation.”

To backtrack momentarily, the Consumer Financial Protection Bureau — created as part of the 2010 Dodd-Frank financial reforms — has a single Director who is appointed by the President. However, unlike other federal agencies with single directorships, the CFPB Director can’t be removed by the President without cause, so even a change in the White House would allow the Director to stay in charge at CFPB until the end of their five-year term.

Conversely, there are a number of federal agencies — the FCC, Federal Trade Commission, Consumer Product Safety Commission — where the President can’t remove a commissioner before their term, but where the authority is spread out among multiple commissioners with equal votes.

There are no laws requiring that a federal agency have either one structure or the other, and in fact there are other agencies with a single director that can’t be removed at the President’s discretion, like the Social Security Administration, the Federal Housing Finance Agency, and the Office of Special Counsel. Yet in October, a two-judge majority of the appeals court panel ruled that the CFPB’s peculiar structure flies in the face of tradition and poses a “threat to individual liberty” that runs afoul of the Constitutionally prescribed set of checks and balances.

To make the CFPB’s structure constitutional, the court said that the President must be able to remove the CFPB Director at the Oval Office’s discretion, rather than having to show cause. Thus, if this ruling stands, when President-elect Donald Trump takes office in January, he’d be able to remove current CFPB Director Richard Cordrday without having to show cause.

The Appeal Of The Appeal

This afternoon, the CFPB officially petitioned for an en banc review by the full D.C. Circuit, arguing [PDF] that the majority’s rationale in making its ruling is contrary to Supreme Court precedent.

In the D.C. Circuit ruling, the majority stated that independent agencies — even those with multiple commissioners — are “unaccountable to the President” if the leaders of those agencies can’t be removed at the President’s will.

However, the CFPB contends that the Supreme Court has plainly held that the President can “create independent agencies run by principal officers appointed by the President, whom the President may not remove at will but only for good cause,” and that “the Constitution did not give the President illimitable power of removal over the officers of independent agencies.”

Instead of looking at the mere issue of how many directors an agency has or whether they can be removed at will, the Supreme Court has stated in Morrison v. Olson that “the real question is whether the removal restrictions are of such a nature that they impede the President’s ability to perform his constitutional duty.”

The appeals panel addressed this question by concluding that the independent status of an independent agency “erects a high barrier between the President and the independent agency regardless of how many people head the independent agency on the other side of the barrier,” but the CFPB contends that this is not in keeping with the Supreme Court’s decision in Morrison.

In that ruling, the court held that so long as the President has the opportunity to give a director the boot for “good cause,” the structure of the agency “retains ample authority to assure that the [official] is competently performing his or her statutory responsibilities.”

As mentioned above, there are three other federal agencies with a leadership structure similar to the CFPB’s, but the appellate panel brushed them aside as irrelevant for lacking “deep historical roots,” even though all of them predate the existence of the CFPB.

In its petition, the Bureau points out that the Federal Trade Commission — formed in 1914 — was still relatively young when in 1935 the Supreme Court upheld the restriction barring the President from removing an FTC commissioner without cause. Five decades later in the Morrison ruling, SCOTUS upheld a removal restriction on an independent counsel without considering tradition or historical antecedents.

The CFPB points out what it believes is a contradiction in the appeals panel’s thinking.

“The underlying premise of the panel’s opinion is that, regardless of the number of individuals who head an agency, for-cause removal renders the agency ‘unaccountable to the President.’ So how did the panel conclude that an agency headed by a multi-member commission will nonetheless pass constitutional muster, whereas one headed by a single director will not?” asks the petition. “The panel’s answer had nothing to do with a lack of presidential accountability. The panel opined that ‘multi-member commissions or boards … reflect a deep and abiding concern for safeguarding the individual liberty protected by the Constitution.’ The panel thus rested its ruling on criteria that lack definition or boundary and have no foundation in Supreme Court precedent or separation-of-powers principles.”

The panel had found that having multiple commissioners with differing viewpoints helps to keep things in check, but the CFPB notes that this still doesn’t address the issue of the President’s ability to remove an agency director.

“[E]ven if fellow commissioners can keep an eye on one another, they cannot remove one another,” argues the petition.

A number of consumer advocacy groups have come out in support of the CFPB petition, especially as the Bureau’s future does not look terribly bright under a Trump administration.

“We need a strong and independent CFPB agency and director now more than ever. If the 2008 financial crisis showed us anything, it’s that people need an independent regulator to look after the interests of consumers,” says Mike Calhoun, President of the Center for Responsible Lending. “Director Cordray has led the Bureau with a steady hand and worked tirelessly with his staff to return billions of dollars back to hardworking people across the country harmed by abusive financial practices.”

Adds Hilary O. Shelton, Director of the NAACP’s Washington Bureau, “We can’t afford to have the crucial work of the CFPB interrupted. Its current structure and leadership has helped save countless people across the country from abusive financial practices.”

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