Earlier this month, President Donald J. Trump proclaimed the start of National Consumer Protection Week. A few days later, on March 17, the Administration was arguing that its own consumer protection agency is unconstitutional.
In an amicus brief filed with the U.S. Court of Appeals for the D.C. Circuit, the Justice Department, once a legal defender of the Consumer Financial Protection Bureau, reversed course and sided with those claiming the agency is an illegal creation of the Dodd-Frank Act.
In 2015, the CFPB fined New Jersey mortgage services company PHH Corp. for alleged violations of the Real Estate Settlement Procedures Act. In a lawsuit challenging the fine, PHH asserted that the agency had neither the regulatory jurisdiction nor constitutional authority to impose the penalty.
PHH scored a victory of sorts in October 2016 when a 2-1 ruling by the U.S. Court of Appeals for the D.C. Circuit found that the CFPB, as currently composed, is unconstitutional.
The Court sided, in large part, with PHH’s assertion that the CFPB’s structure violates Article II of the Constitution because it operates as an independent agency headed by a single director. To constitutionally comply, it argued, the agency’s director must be removable at will by the President, meaning that the CFPB would operate as a traditional executive agency; or if structured as an independent agency, it must be structured as a multi-member commission.
The majority opinion, in a fairly scathing rebuke written by Judge Brett Kavanaugh, said “the single-director structure of the CFPB represents a gross departure from settled historical practice.”
“Never before has an independent agency exercising substantial executive authority been headed by just one person,” it added. “The CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.”
The opinion stopped short of calling for an immediate dismantling of the agency. Instead, the Bureau was directed to find a remedy to its constitutional woes.
For its part, the CFPB requested, and was granted, an en banc rehearing before the full bench of the appellate court’s judges. A Justice Department brief at the time argued in favor of that hearing.
Oral arguments are scheduled for May 24.
Ahead of those oral arguments, the Justice Department—once a staunch defender of the CFPB in Obama Administration court filings—is arguing a Trump Administration viewpoint. Specifically, it is trying to establish that CFPB Director Richard Cordray, whose term expires in 2018, can be removed by the President for reasons other than “inefficiency, neglect of duty, or malfeasance in office.” The “for cause” restriction, it argues, is unconstitutional.
“While we do not agree with all of the reasoning in the panel’s opinion, the United States agrees with the panel’s conclusion that single-headed agencies are meaningfully different from the type of multi-member regulatory commission addressed in [Humphrey’s Executor v. United States, a 1935 case approving “for cause” removal protections for Federal Trade Commission heads],” the amicus brief says.
“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 adds. “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.”
“Whereas a multi-headed commission generally must engage in at least some degree of deliberation and collaboration, which tend toward compromise, a single Director can decisively implement his own views and exercise discretion without these structural constraints,” the brief argues. “It is for such reasons that the Framers adopted a strong, unitary Executive—headed by the President—rather than a weak, divided one. Vesting such power in a single person not answerable to the President constitutes a stark departure from that framework.”
The difference in decision-making is reinforced by the difference in the timing and composition of appointments to the two types of agencies. “For a multi-headed commission with staggered terms, the President is generally assured to have an opportunity to appoint at least some of its members, and the bipartisan-membership requirement that is common for such commissions further increases the likelihood that at least some of the holdover members share the President’s views,” the Justice Department says. “By contrast, where a single Director has a term greater than four years (as is true for the CFPB), a President may never get to appoint the Director.”
“An agency where a President lacks control over both back-end removal and front-end appointment represents a further departure from the constitutional design,” the brief argues.