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Democrats defend CFPB’s constitutionality in legal brief

Joe Mont | April 12, 2017

As Republicans escalate their attack on the Consumer Financial Protection Bureau, with hopes that a forthcoming judicial ruling will declare the agency’s structure unconstitutional, the opposition party is not sitting idly by.

Senate Democrats, including Sen. Sherrod Brown (D-Ohio), ranking member of the Senate Banking Committee, have filed an amicus brief with a federal appeals court in support of the CFPB’s current structure as an independent agency.

The brief outlines how Congress decided after the 2008 financial crisis to design the CFPB as an independent agency with a single director to protect consumers’ interests and respond quickly to changes in the marketplace. It also emphasizes, although many Republicans would disagree, that Congress placed numerous checks on the director’s powers to ensure accountability.

“Congress created the CFPB to serve as a strong, independent cop on the beat to protect consumers from the kind of financial fraud and abuse that caused the Great Recession,” Brown said in a statement. “Stripping the bureau of its independence would give the special interests their wish to incapacitate the agency, leaving consumers at the mercy of predatory lenders. Instead of weakening the CFPB and gutting Wall Street reforms, Congress should be working to rebuild our infrastructure, put more people to work, and strengthen consumer protections.”

Created under the Dodd-Frank Act, the CFPB has a single director who is appointed by the President and can be removed only for cause. Critics of the Bureau have sought to remove Director Richard Cordray before his term expires in July 2018.

In October, a three-judge panel of the U.S. Court of Appeals for the District of Columbia ruled in he case of PHH Corporation v. CFPB that the CFPB director’s “for cause” removal provision was unconstitutional. The court’s ruling canceled the “for cause” provision, allowing the president to fire the director at any time and for any reason.

That ruling was vacated in February when the D.C. Circuit Court granted the CFPB’s request to rehear the case with the full panel of judges. Members of Congress, state attorneys general, and consumer advocacy organizations also pushed for the rehearing. The court will hear oral arguments on May 24.

Sixteen current and former Democratic senators signed onto the brief.

“The CFPB's single-director leadership is similar to the governance structure of the Office of the Comptroller of the Currency and Federal Housing Finance Agency,” Democrats argue. The CFPB’s ability to fund its operations without relying on Congressional appropriations, they say, is similar to several other financial regulators.

“To prevent overreach and improve accountability, Congress incorporated other checks on the Bureau’s authorities, some unprecedented among financial regulators,” they write. “The CFPB, for instance, is the only financial regulator that is annually audited by Government Accountability Office, forced to comply with key small-business requirements, and whose regulations are subject to override by an appellate body composed of heads of other agencies, including the Secretary of the Treasury, who is removable at will by the President.”

Other arguments presented in the brief: 

  • Congress has broad authority to shape the structure of the federal government and to confer on certain officers a degree of independence from the President.
  • Responding to “the devastating financial crisis of 2008,” Congress made a considered judgment that an independent Consumer Protection Bureau with a single Director “could best combat the types of abuses that caused the crisis.”
  • “Consistent with the constitutional text and history, the Supreme Court has held—repeatedly and without exception—that Congress may limit the President’s authority to remove officers at will without impeding his ability to ‘take care that the laws be faithfully executed.’”
  • Limiting the President’s ability to remove an agency’s director does not detract from the President’s constitutional power any more than limiting his ability to remove an agency’s commissioners or board members.

Under Cordray’s leadership, the CFPB has taken actions against companies that add on hidden fees to credit cards, attempt to collect on debt that has already been paid off, discriminate against minorities, or use deceptive marketing to sell financial products. 

Ahead of the upcoming oral arguments, the Justice Department—once a staunch defender of the CFPB in Obama Administration court filings—is arguing a Trump Administration viewpoint and trying to establish that Cordray can be removed by the President for reasons other than “inefficiency, neglect of duty, or malfeasance in office.” The “for cause” restriction, it argued in its own brief, is unconstitutional.

“A single-headed agency, of course, lacks those critical structural attributes that have been thought to justify ‘independent’ status for multi-member regulatory commissions,” the Justice Department wrote. “Moreover, because a single agency head is unchecked by the constraints of group decision-making among members appointed by different Presidents, there is a greater risk that an ‘independent’ agency headed by a single person will engage in extreme departures from the President’s executive policy.”