On January 31, 2018, a federal appeals court ruled that the structure of the Consumer Financial Protection Bureau (“CFPB”) complies with the Constitution. Many Republicans and attorneys in the financial industry had claimed a key provision of the CFPB—which provides for an independent director with a five-year term in office, subject to removal by the president only for “inefficiency, neglect of duty, or malfeasance in office”—unconstitutionally strips the president of his constitutional powers as set forth in Article II. In a 7–3 decision, the U.S. Court of Appeals for the District of Columbia Circuit disagreed.

The CFPB, which Congress created as part of the Dodd-Frank Act to regulate Wall Street following the 2008 financial crash, reports that it has returned about $11.8 billion to roughly 29 million consumers since 2011. But this winter, after Richard Cordray resigned as its director, Trump installed his Office of Management and Budget director, Mick Mulvaney—as its acting director. Mulvaney recently requested zero dollars in funding for the agency, stating that the agency has a significant surplus of funds thereby not requiring taxpayers to pay more money when the agency is already adequately funded.

The constitutional challenge to the CFPB centers on the president’s authority to manage executive branch officials. The Trump administration claimed that, because the CFPB is part of the executive branch, the president must be able to fire its director at will. PHH, a mortgage company the CFPB had fined $109 million in 2015 for allegedly running an illegal insurance kickback scheme, went further, arguing in court that the agency should be dissolved altogether. In October 2016, a three-judge panel of the D.C. Circuit ruled in favor of PHH, arguing that the agency’s structure was unconstitutional. The full D.C. Circuit then vacated the panel’s decision and reheard the case and has now affirmed the agency’s constitutionality.

Judge Nina Pillard’s opinion for the court explains the decision. The Constitution, Pillard wrote, permits Congress to establish “independent” agencies that are “one step removed from political winds and presidential will.” Indeed, in 1935, the Supreme Court ruled that the president lacks “illimitable power of removal” over these agencies, and Congress can insulate their commissioners from termination without good cause.

That decision, Pillard held, controls here. The main distinction between the CFPB and most other independent agencies is that the CFPB has a single director, instead of a group of commissioners. But Pillard found that this feature does not weigh against the agency’s constitutionality. She pointed out that the Supreme Court has instead drawn a line between officials who exercise “core executive functions” (whom the president may fire at will) and those assigned a “degree of independence” by Congress (who may be protected from presidential caprice). The CFPB director, Pillard concluded, falls in the latter category, and may therefore be shielded from arbitrary or purely political removal.

Judge Karen LeCraft Henderson dissented, arguing that the entire agency violates the Constitution and “should be invalidated top to bottom.” Judge Brett Kavanaugh also dissented, joined by Judge A. Raymond Randolph; he would have ruled that the president must be able to fire the CFPB director at will.  Kavanaugh’s dissent carefully lays out the conservative case against the CFPB’s independence. “This is a case about executive power and individual liberty…

To prevent tyranny and protect individual liberty, the Framers of the Constitution separated the legislative, executive, and judicial powers of the new national government. To further safeguard liberty, the Framers insisted upon accountability for the exercise of executive power.

Kavanaugh asserts that the CFPB’s single commissioner setup “threatens individual liberty more than the traditional multi-member structure does.” When multiple commissioners oversee an agency, they can check each other’s excesses. But the absence of this “traditional safeguard,” Kavanaugh insists, threatens “the individual liberty protected by the Constitution’s separation of powers.”

Pillard dismisses this analysis.  She states:

It remains unexplained why we would assess [the law] with reference to the liberty of financial services providers, and not more broadly to the liberty of the individuals and families who are their customers. Congress determined that, without the Dodd-Frank Act and the CFPB, the activities the CFPB is now empowered to regulate contributed to the 2008 economic crisis and Americans’ devastating losses of property and livelihood. Congress understood that markets’ contribution to human liberty derives from freedom of contract, and that such freedom depends on market participants’ access to accurate information, and on clear and reliably enforced rules against fraud and coercion. Congress designed the CFPB with those realities in mind.

At a moment when Trump and congressional Republicans argue that the FBI and CIA exist, subject to presidential authority, the dispute between Kavanaugh and Pillard about constitutional abstractions like “liberty” and “independence” becomes salient in ways that transcend a case that may be hypertechnical.


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