The long-awaited decision has just come from the United States Court of Appeals for the District of Columbia Circuit in the case of PHH Corp. v. Consumer Financial Protection Bureau (CFPB).  The full court's vote to overturn the 2016 three-judge decision preserves the structure of the CFPB as laid out in Dodd-Frank. 

The Court granted "en banc" (by the full court) review to re-consider whether the federal statute providing the Director of the CFPB with a five-year term in office, subject to removal by the President only for “inefficiency, neglect of duty, or malfeasance in office,” is consistent with Article II of the Constitution.

You can download the full 250-page decision here.


PHH, a mortgage company in Mount Laurel, N.J., wanted the U.S. Court of Appeals for the District of Columbia Circuit to vacate a June 2015 enforcement ruling by the CFPB that said PHH violated anti-kickback provisions in Section 8(a) of the Real Estate Settlement Procedures Act (RESPA) and had to give up $109 million in what CFPB Director Cordray had said were ill-gotten mortgage reinsurance premiums. 

The last official activity in this case was in May 2017, when the court heard oral arguments. Since that time, lawmakers, regulators, industry and consumer advocates have awaited this decision.

Much has changed in the period since the original CFPB enforcement ruling: Richard Cordray is no longer in charge; Republicans control both houses of Congress and the White House; President Trump is in a position to name a replacement to lead the Bureau; under the Obama administration the Department of Justice (DOJ) supported the CFPB -- under Trump, the DOJ has sided with PHH.  

The Decision

Judge Cornelia Pillard, representing the majority, wrote:  

Today, we hold that federal law providing the Director of the CFPB with a five-year term in office, subject to removal by the President only for “inefficiency, neglect of duty, or malfeasance in office,” is consistent with the President’s constitutional authority.

Congress validly decided that the CFPB needed a measure of independence and chose a constitutionally acceptable means to protect it. First, the removal restriction here is wholly ordinary—the verbatim protection approved by the Supreme Court back in 1935 in Humphrey’s Executor and reaffirmed ever since. The provision here neither adds layers of protection nor arrogates to Congress any role in removing an errant official. Second, the CFPB Director’s autonomy is consistent with a longstanding tradition of independence for financial regulators, and squarely supported by established precedent.

The CFPB’s budgetary independence, too, is traditional among financial regulators, including in combination with typical removal constraints. PHH’s constitutional challenge flies in the face of the Supreme Court’s removal-power cases, and calls into question the structure of a host of independent agencies that make up the fabric of the administrative state.

We are nevertheless urged that the constitutionality of for cause removal turns on a single feature of the agency’s design: whether it is led by an individual or a group. But this line of attack finds no home in constitutional law.

As a practical matter, considering the impact on presidential power, the line of accountability at the CFPB is at least as clear to the observing public as at multi-headed independent agencies, and the President’s control over the CFPB Director is at least as direct. PHH has not identified any reason to think that a single-director independent agency is any less responsive than one led by multiple commissioners or board members. If anything, the President’s for-cause removal prerogative may allow more efficient control over a solo head than a multi-member directorate. Consider the case of Humphrey’s Executor. There, President Roosevelt attempted to remove an FTC Commissioner based on policy disagreements. Of course, the Supreme Court put a stop to the President’s effort to sway the agency, upholding the Commissioner’s removal protection. But had the Court not so held, perhaps that would not have been the last of the personnel changes at the FTC. Removal of just one Commissioner by the President might not have had any substantial effect on the multi-member body’s direction, which he so strongly disfavored. The President might have had to remove multiple Commissioners in order to change the agency’s course.

Concluding finally,

Applying binding Supreme Court precedent, we see no constitutional defect in the statute preventing the President from firing the CFPB Director without cause. We thus uphold Congress’s choice.

The Supreme Court’s removal-power decisions have, for more than eighty years, upheld ordinary for-cause protections of the heads of independent agencies, including financial regulators. That precedent leaves to the legislative process, not the courts, the choice whether to subject the Bureau’s leadership to at-will presidential removal. Congress’s decision to provide the CFPB Director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will. We have no warrant here to invalidate such a time-tested course. No relevant consideration gives us reason to doubt the constitutionality of the independent CFPB’s single-member structure. Congress made constitutionally permissible institutional design choices for the CFPB with which courts should hesitate to interfere.

Not everyone agreed

Three judges on the panel dissented. In her opinion, Circuit Judge Karen LeCraft Henderson addressed the fundamental issue in the case:

"How does a single-Director independent agency fare worse than multi-member independent agencies in protecting individual liberty? A single-Director independent agency concentrates enforcement, rulemaking, and adjudicative power in one individual. By contrast, multi-member independent agencies do not concentrate all of that power in one individual. The multi-member structure thereby helps to prevent arbitrary decisionmaking and abuse of power, and to protect individual liberty.

The point is simple but profound. In a multi-member independent agency, no single commissioner or board member can affirmatively do much of anything. Before the agency can infringe your liberty in some way – for example, by enforcing a law against you or by issuing a rule that affects your liberty or property – a majority of commissioners must agree. As a former Chair of the Federal Trade Commission has explained, it takes 'a consensus decision of at least a majority of commissioners to authorize, or forbear from, action.' That in turn makes it harder for the agency to infringe your liberty."

She also addresses the matter of independence, 

Moreover, even assuming that ongoing influence of independent agencies can occur in indirect ways, it is not plausible to say that a President could have more indirect ongoing influence over (i) a single Director who has policy views contrary to the President’s than the President has over (ii) a multi-member independent agency headed by a chair who is appointed by the President and shares the same policy views as the President.

In short, given the President’s inability to designate a new CFPB Director at the beginning of the Presidency – in contrast to the President’s ability to appoint chairs of the FTC, FCC, SEC, and NLRB, for example – the single-Director CFPB structure diminishes the President’s power more than the traditional multi-member independent agency does.

Finally, Judge Hendersen argued that the Court should have withheld any order in this case until the Supreme Court decides Lucia v. Securities and Exchange Commission, which many believe could have implications for the CFPB.

As the Court held in Freytag, Appointments Clause violations go “to the validity” of the underlying proceedings. Suppose the Supreme Court agrees with the Solicitor General in Lucia, which seems entirely probable. Then not only the CFPB Director’s order, but also all proceedings before the ALJ, including the ALJ’s Recommended Decision, would be invalid. Nevertheless, the majority – relying on the order granting en banc in PHH – remands the case to the CFPB without waiting for the Supreme Court to decide Lucia. (references omitted)

Two points about the order are worth noting. The first is that the order limited neither the issues to be argued nor the issues to be decided. The second is that the order embodied the en banc court’s judgment that the proper disposition of this case required consideration of the outcome in Lucia. Of course, the posture has changed. At the time of the en banc order, Lucia was pending in this court; now Lucia is pending in the Supreme Court. That difference makes it all the more important that we wait for the Supreme Court’s decision.

insideARM Perspective

The list of ironies of the changing positions and motivations related to this case is long.

When this case began in 2015, Democrats supported the single director fireable only for cause structure, saying it removed politics from the direction of the CFPB. But that was when Cordray still had several years left in his term, and many expected a Democrat to succeed Obama in the White House.

Conservatives in 2015 said the only appropriate structure for accountability must be a bi-partisan commission. But that was also when Cordray still had several years left in his term, and many expected a Democrat to succeed Obama in the White House.

Today's decision leaves the power to re-shape the goals and actions of the CFPB in the hands of those who wanted to see the single-director structure deemed unconstitutional. 

Meanwhile, House Financial Services Committee Chairman Jeb Hensarling (R-TX) - a long time critic of the CFPB, and also a rumored potential Cordray replacement - released this statement:

“I am deeply disappointed with the court’s decision and hope the Supreme Court will review the ruling in short order. In the meantime, I take great solace in the fact that Mick Mulvaney can use his unchecked, unilateral powers to continue the agency’s transformation into one that will, as he said, “exercise [its] statutory authority to enforce the laws of this nation….execute the statutory mandate of the bureau to protect consumers’ and go no further.

Even though I have total confidence in Acting Director Mulvaney’s vision, the fact remains that no one person in America – especially someone who is unelected – should have the authority to unilaterally control whether working Americans can get a mortgage or a checking account. The Bureau’s consumer protection mission is important, but no government agency – no matter how well-intentioned – should be able to evade common sense checks and balances that are necessary for accountability.

Republicans stand ready to work with Democrats to reform the CFPB into a law enforcement agency that truly protects consumers and is accountable to the people’s elected representatives.”


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