Justice Department Calls For Rehearing On Constitutionality Of Consumer Financial Protection Bureau

Image courtesy of Adam Fagen

With only weeks to go before President-elect Trump could possibly replace the Director of the Consumer Financial Protection Bureau with someone of his choosing, the U.S. Justice Department is asking a federal appeals court to rehear arguments in a case involving the constitutionality of the Bureau’s structure.

For newcomers to this story, the Consumer Financial Protection Bureau — created by the 2010 financial reforms — has a single Director — currently Richard Cordray — atop its organizational chart. Unlike many other federal agencies with a single director, the CFPB Director can not be removed at the whim of the President. Instead, removing a CFPB Director requires that the President shows cause for removal.

That sort of staying power is usually only reserved for agencies where there isn’t just one director, but a multi-commissioner panel (Federal Trade Commission, FCC, Consumer Product Safety Commission, among others).

It’s rare to have an independent federal agency with a single director whose job isn’t vulnerable to the whims of the White House, though such agencies do exist; the Social Security Administration, the Federal Housing Finance Agency, and the Office of Special Counsel each have a similar structure.

There is nothing in the Constitution about the leadership structure of federal agencies, but in October a three-judge panel of the D.C. Circuit Court of Appeals nonetheless ruled that the CFPB’s structure was unconstitutional because it created a Director who held too much authority, independent of the White House.

Rather than gut the CFPB, as the appellant in that case had hoped, the two-judge majority instead ruled that the Bureau could continue to operate as is so long as the “for cause” condition was stricken. In other words, so long as the President can fire the CFPB Director for any reason, the Bureau’s structure was okay with the court.

Supporters of the Bureau countered that the entire point of this structure was to shield the Bureau’s Director from political pressure.

In November, the CFPB petitioned the D.C. Circuit to have the matter reheard by the entire court, not just a three-judge panel. The Bureau’s argument is that the the Supreme Court has 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.

The Bureau’s petition has received support from nearly two dozen U.S. lawmakers and numerous consumer advocates, who believe that the three-judge panel made a decision “without even once addressing why Congress took such care to structure the CFPB as it did or how the CFPB’s design is so critical to its proper functioning.”

They were joined today by lawyers for the Justice Department, who filed a brief [PDF] with the court, explaining why the DOJ believes this case merits a rehearing.

The DOJ contends that the D.C. Circuit panel’s approach to this matter departs from precedent set out by the Supreme Court.

“The panel here did not conclude that the single-Director structure of the CFPB impairs the exercise of Presidential power more significantly than would a multi-member directorate,” reads the brief. “The panel also did not conclude that the CFPB exercises greater power than multi-member independent agencies… The panel’s opinion was, instead, premised on its view that an agency with a single head poses a greater threat to individual liberty than an agency headed by a multi-member body that exercises the same powers. Our constitutional structure, and the separation of powers in particular, are ultimately designed to protect individual liberty.”

If the full D.C. Circuit does choose to rehear the CFPB case, it’s believed that this would bar the incoming Trump administration from removing Cordray until after the court has ruled again — though some legal experts believe that Trump may be able to remove Cordray — who has years to go before his five-year term runs out — regardless of the status of the rehearing.

Even if Cordray remains in office, it’s expected that the new administration and Congress will work together to strip the Bureau of its authority. In early December, a coalition of financial industry trade groups wrote to Capitol Hill leaders calling on them to gut the Bureau and roll back a number of recent pro-consumer regulations.

More recently, the House Freedom Caucus sent the President-elect a wish list of more than 200 rules and regulations it wants to see undone during the administration’s first 100 days. Included on that list was a request to amend the law to “require that no deference be given to the interpretation of consumer financial law by the Bureau of Consumer Financial Protection.”

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