The Executive Branch vs. the CFPB

In a rare move, the Justice Department reversed course, filing an Amicus Brief in support of a ruling by a panel of the DC Circuit Court declaring the current structure of the Consumer Financial Protection Bureau (CFPB) to be unconstitutional.  Although the CFPB is an independent agency which may represent itself in court, for this litigation, which began during the Obama administration, the CFPB was being supported by the Justice Department—a clear sign of the administration’s support.  This unprecedented change of course is a sign of the current administration’s disdain for Richard Cordray and the agency itself.  It may also be a message to Congress to enact measures to eliminate or at the least, minimize the impact of the CFPB.

The CFPB is in a class of independent federal agencies intended to operate outside of political control.  These independent agencies are not directly accountable to the President.  Typically, the President has the power, under Article II of the Constitution, to supervise, direct and remove at will subordinate officers of the Executive Branch including the heads of the various Executive Agencies.  Independent agencies operate differently.  An agency is independent when the heads are removable only for cause, not at the President’s will.  In the financial sector, these independent agencies include the Securities and Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC), Financial Industry Regulatory Authority (FINRA), Consumer Financial Protection Bureau (CFPB), National Credit Union Administration (NCUA), Federal Trade Commission (FTC), and even the Small Business Administration (SBA).  The agencies are bodies of experts with particularized experience who are expected, in the absence of political pressures, to operate in the best interests of the country.

Historically, independent agencies have been led by multiple commissioners, directors, or board members.  This is intended to provide checks and balances that are otherwise absent without presidential or congressional oversight.  For this reason, the heads of independent agencies serve defined terms and may only be removed for cause.  The courts have stated that this structure protects our system of government.  Heads of executive agencies are accountable to and checked by the President, and heads of independent agencies are at the least accountable to and checked by other commissioners.  This structure, recognized by the courts years ago, is not explicitly written into the Constitution.  Until now, there has been no occasion to examine whether a commission or board is required for an agency to be independent.  It has merely been customary.

When the CFPB was first contemplated, Senator Elizabeth Warren intended the agency to be a typical multi-member independent agency.  However, Congress deviated from the original recommendation and created a single member organization.  In PHH Corporation v. Consumer Financial Protection Bureau, 839 F.3d 1 (D.C. Cir. 2016), a panel of DC Circuit judges held that the CFPB was unconstitutionally structured in violation of Article II of the Constitution because the single director’s unchecked authority was second only to the President’s.  The court proposed striking the provision limiting the President’s power to remove the director only for cause to remedy this violation.  The opinion was appealed during the Obama administration and will go before the full D.C. Circuit Court for review.

The Obama Administration Justice Department supported the CFPB’s efforts to establish that a one-person independent agency is constitutional.  The Trump Administration through an Amicus Brief, has weighed in on the issue, switching the position of the Justice Department to argue that the agency is in fact unconstitutional, and President Trump should have the authority to remove Cordray at will.  The CFPB remains an independent agency, and still has the authority to continue representing its position before the full panel of the DC Circuit.  Thus, this situation creates a conflict among all branches of government and a government agency.  The CFPB, properly created by Congress and approved by the President, now faces a challenge to the constitutionality of its existence in the Courts and faces the opposition of the very branch of the government to which it belongs, the Executive.  

The pending litigation does not give any certainty to those in the financial industry subject to the authority of the CFPB.  President Trump and his administration clearly believe the agency is unnecessary, but it would require Congressional intervention to do away with the agency in its entirety.  Congress appears to remain incapable of advancing a uniform agenda, as evidenced by the recent failure of attempts to pass health care reform.  And, even if the court agrees with the Trump administration and the lower court, it does not have to eliminate the agency.  It may reform the CFPB’s structure to make it constitutional—and the easiest path for this change may be to allow President Trump to remove Cordray at will.  There is no mandate, however, that the full court take the same approach to restructuring the CFPB recommended by the panel.  They may take any path they believe necessary to make the agency constitutional, which may include requiring the appointment of more members or other measures.

Given the current turmoil in the administration, the financial sector would be wise to operate as if the CFPB is here to stay.  It may be months before a court ruling, and, even if favorable, the appointment, confirmation and transition process may mean that a year or more will pass before regulations are changed.

This post was written by Carliss Chatman for Jurispect. Carliss joined Stetson University College of Law in in 2015 as a Visiting Assistant Professor. She teaches in the areas of business law and ethics. Her scholarship is intersectional with a focus on issues at the heart of commercial litigation: the interplay of business entities, government, and natural persons.