The Consumer Financial Protection Bureau is barely five years old and its future is already in doubt after a divided federal appeals court ruled that the CFPB’s leadership structure is unconstitutional. The Bureau’s legal battle is far from over, but the new Trump administration would likely not fight a court ruling the White House seems to agree with. That’s why a number of consumer advocates and more than a dozen state attorneys general have stepped up, seeking to defend the CFPB if the new executive branch won’t.
With apologies to those who are familiar with this story, some back-tracking is necessary to bring newcomers up to speed.
The CFPB, created by the 2010 Dodd-Frank financial reforms, has a rare — but not unique — leadership structure. Its sole Director is appointed by the President, but can only be removed from office if the administration demonstrates that the Director has done something deserving of dismissal. Most agencies with just one director-level administrator work at the discretion of the Oval Office, meaning the President can fire that person at whim.
On the flip-side of that bureaucratic coin are the multi-member commissions. In those cases, each commissioner is usually shielded from being removed without cause, but the commissioners have equal voting authority.
While opponents of the CFPB — including the appellate court judges who sided against the Bureau — paint its structure as unique, there are multiple, well-established federal agencies with a similar setup. The Social Security Administration, Federal Housing Finance Agency, and the Office of Special Counsel each have one top-level executive who can only be removed “for cause.”
The Oct. 2016 decision by the Court of Appeals for the D.C. Circuit allowed the CFPB to continue operating, and for its current (and so far only) Director, Richard Cordray, to remain in office, but under the condition that he can be removed at the President’s discretion.
The CFPB has asked for a rehearing by the full D.C. appeals court and the Justice Department filed a brief shortly before Christmas arguing in favor of that petition, but the election of Donald Trump and the court’s delay in deciding whether to rehear the case has put the Bureau’s future in doubt.
One other aspect of the CFPB’s construction is that it is represented by its own in-house lawyers in all federal courts, except for the Supreme Court. That gives the Bureau a small degree of protection against shifting political winds.
At the same time, there are ways the Bureau could be left in need of outside help.
The most obvious scenario involves the case going before the Supreme Court. If it did, the U.S. Solicitor General — who is appointed by the President and who reports directly to the U.S. Attorney General — would be the one expected to take up the Bureau’s side. However, given the Trump administration’s apparent disdain for the Bureau, it’s highly possible that the DOJ would choose to not support review by the nation’s highest court.
The second highly possible scenario involves Trump firing Director Cordray and replacing him with a director that will drop all legal challenges to the Bureau’s structure. The administration has at least two routes to go in this regard. It could argue that the Oct. 2016 ruling gives the President to say “You’re fired” to Cordray, though that could end up in a separate legal quagmire. GOP opponents of the CFPB have been preparing for the other option, which would be to dismiss him for cause.
The House Financial Services Committee — led by Rep. Jeb Hensarling, whose most recent campaign received nearly $1 million from industries directly related to CFPB regulation — recently alleged that Cordray may have violated the law by not heeding the advice of Bureau lawyers regarding a new regulation on auto lending. This is the kind of information the White House could use to justify dismissing Cordray while abiding by the law as it was written.
Regardless of how it happens, it seems likely that the current CFPB will eventually need outside parties to take up this dispute when the new administration does not.
To that end, a number of consumer advocacy groups, state attorneys general, and two federal lawmakers, have stepped forward, asking the court for permission to intervene in defense of the CFPB.
The attorneys general were first. Led by Connecticut AG George Jepsen, the top prosecutors from 16 states — Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Mississippi, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, Washington — and the District of Columbia filed a motion to intervene [PDF] on Monday, arguing that a “significant probability exists that the pending petition for rehearing will be withdrawn, or the case otherwise rendered moot, in a way that directly prejudices the interests of the State Attorneys General and the citizens of the States that they represent.”
The AGs contend that, by allowing them to intervene in defense of the CFPB, it would “eliminate that risk and ensure that the courts can resolve this important controversy.”
Then today, Constitutional Accountability Center filed a brief [PDF] on behalf of two prominent lawmakers — Sen. Sherrod Brown (OH), Ranking Member of the Senate Banking Committee; and Rep. Maxine Waters (CA), Ranking Member of the House Financial Services Committee.
The CAC argues the Trump administration has made it clear that it does not intend to respect the CFPB leadership structure that Congress approved only six years ago.
“Indeed, absent intervention, it is possible that the panel’s decision will be insulated from review, thus nullifying [Brown’s and Waters’] votes to establish the CFPB as an independent agency and their ability to establish similar independent agencies in the future,” explains the motion.
CAC President Elizabeth Wydra, says that it’s critical for the CFPB Director to be “insulated from political pressure” and that this buffer was a “top priority for the Congress that created the CFPB.”
Finally, the third intervention offer [PDF] came from a coalition of consumer advocates, including Americans for Financial Reform, the Center for Responsible Lending, and the U.S. Public Interest Research Group.
“Since 2011, the CFPB has restored order to the financial marketplace, and consumers overwhelmingly support its efforts to rein in abusive practices,” explains U.S. PIRG Consumer Program Director Ed Mierzwinski. “Director Richard Cordray has brought much-needed transparency to industries that sorely lacked it, including remittance transfers, credit cards, student loan servicing and payday loans. Interfering with that progress or efforts to roll back important consumer protection provisions will only put our economy and middle class at risk to another financial crisis.”