Amid Republican led efforts to weaken its purview and scale back previously decided enforcement strategies, the Consumer Financial Protection Bureau has prevailed against a legal challenge to the constitutionality of its structure and political independence
An en banc ruling handed down on Wednesday by the U.S. Court of Appeals for the D.C. Circuit says the agency’s structure is indeed constitutional and that its director can only be removed by the president for inefficiency, neglect of duty or malfeasance in office. The 6-3 ruling released this week upends a 2-1 ruling in 2016 by a three-judge panel of the same court,
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 $109 MILLION 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 the 2-1 ruling by the Court found that the CFPB, as currently composed, is unconstitutional.
The Court, at that time, 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.”
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.
Writing for the majority, Judge Cornelia T.L. Pillard argued that the CFPB’s structure was a product of its necessity, created in the aftermath of a global financial meltdown.
“Congress’s solution was not so much to write new consumer protection laws, but to collect under one roof existing statutes and regulations and to give them a chance to work,” she wrote. “Congress determined that, to prevent problems that had handicapped past regulators, the new agency needed a degree of independence. Congress gave the CFPB a single Director protected against removal by the President without cause.”
“PHH’s challenge is not narrow,” Pillard added. “It claims that independent agencies with a single leader are constitutionally defective while purporting to spare multi-member ones. But the constitutional distinction PHH proposes between the CFPB’s leadership structure and that of multi-member independent agencies is untenable. That distinction finds no footing in precedent, historical practice, constitutional principle, or the logic of presidential removal power. The relevance of “internal checks” as a substitute for at-will removal by the President is no part of the removal-power doctrine, which focuses on executive control and accountability to the public, not the competing virtues of various internal agency design choices.”
“The threat PHH’s challenge poses to the established validity of other independent agencies, meanwhile, is very real,” the 250-page opinion adds. “PHH seeks no mere course correction; its theory, uncabined by any principled distinction between this case and Supreme Court precedent sustaining independent agencies, leads much further afield. Ultimately, PHH makes no secret of its wholesale attack on independent agencies—whether collectively or individually led—that, if accepted, would broadly transform modern government. Because we see no constitutional defect in Congress’s choice to bestow on the CFPB Director protection against removal except for “inefficiency, neglect of duty, or malfeasance in office,” we sustain it.”
The consumer watchdog Allied Progress praised the Court’s decision as a “D.C. Circuit Court Issues Landmark Victory for the CFPB.”
“This isn’t just a victory for the Consumer Financial Protection Bureau, this is a victory for consumers everywhere,” says executive director, Karl Frisch. “The D.C. Circuit has soundly rejected attempts by Wall Street special interests to cripple the Bureau by challenging its constitutionality. Equally important, the court has reaffirmed the CFPB’s independence from the Trump administration, rejecting the notion that a president should be able to replace the agency’s director without cause. The majority decision called this case a ‘wholesale attack on independent agencies’ and we couldn’t agree more.”
“Beyond this decision, the Trump administration’s attack on Consumer Bureau continues. An affront to the very notion of an independent agency free from executive interference, Trump has installed Mick Mulvaney, a current member of his administration, to serve part-time as ‘acting director.’ While this case is an important victory, the fight continues to protect consumers and defend the mission of the CFPB to hold big banks, predatory lenders, and other financial bad actors accountable.”
A much different view comes from Competitive Enterprise Institute financial policy expert Iain Murray:
“Today the D.C. Circuit said that if Congress vests a bureaucrat with some power, there need be no checks or balances on that bureaucrat,” he says. “The Court has therefore given future heads of agencies like the CFPB license to wield enormous power with little accountability or constraint. This outrage to the spirit of the Constitution needs to be corrected by the Supreme Court and by Congress, which made the original mistake in giving the CFPB so much power with so little accountability.
CEI has a pending constitutional challenge against the CFPB, State National Bank of Big Spring v. CFPB. The lawsuit, currently before the U.S. District Court for the District of Columbia, argues that the structure of the CFPB violates the Constitution's separation of powers because the agency is insulated against meaningful checks by the legislative, executive, and judicial branches of government.