Trying to Understand the Basis for the Latest Attack on the CFPB

by Jeff Sovern

Earlier this month, Allison posted a link to a story about the PHH case in which the D.C Circuit heard arguments about whether the CFPB's structure is constitutional (CFPB Monitor reports on the oral argument here).  The Wall Street Journal has now run an editorial (behind a paywall) arguing that the Bureau is unconstitutional because it is headed by a single director who cannot be removed by the president except for cause.  The editorial distinguishes agencies run by multimember commissioners; it specifically mentions the FTC, which has five commissioners who also cannot be removed except for cause, and plenty of other agencies have similar structures.  The editorial also noted that the Social Security Administration has a single administrator, but the WSJ argues that the SSA has less power than the CFPB. That last strikes me as somewhat subjective, but I don't know enough about the SSA to express an opinion. But here's the part that particularly confuses me: if the commissioners can't be removed except for cause, why does it matter for purposes of the constitution how many there are?  If the problem is that an agency is exercising an unconstitutional amount of power, why does sharing that power among, say, five people make it ok but concentrating it in one person does not?  When an agency has five commissioners, and divides in a 3-2 tie, doesn't the exercise of power still come down to that fifth vote?  And a problem with more decision-makers is that they become less accountable, while with one person, it is clear who is responsible and so accountability becomes easy.  And all this ignores the fact that other agencies are headed by a single person who cannot be removed excerpt for cause; in the financial arena, for example, the Comptroller of the Currency, who can't be removed without cause, arguably wields as much power as the CFPB's director (remember how the OCC declared state anti-predatory lending laws preempted as to national banks–something that might have contributed to the Great Recession?); is that office also unconstitutional? I'm not a constitutional law expert so I am hoping those who know more on the subject can enlighten me in the comments.

0 thoughts on “Trying to Understand the Basis for the Latest Attack on the CFPB

  1. Brian Marshall says:

    My take on the case is on ACSBlog (
    An Easy Case: Why a Federal Appeals Court Should Reject a Constitutional Challenge to the CFPB
    April 11, 2016
    Guest Post
    by Brian Simmonds Marshall, Policy Counsel, Americans for Financial Reform
    The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) to invigorate consumer financial protection by consolidating responsibility for those laws’ interpretation and enforcement in a single agency. Even before the CFPB opened its doors, industry forces set out to weaken it through bills that would change its single-director structure, among other means.
    They lost that fight in Congress – repeatedly. But now the CFPB’s opponents have been given a glimmer of hope by the three-judge panel deciding a mortgage firm’s appeal of a CFPB enforcement order. If those judges follow Supreme Court precedent, however, that hope will be short-lived and the challenge to the CFPB’s structure will fail, just as it has in two prior federal district court cases.
    The latest case involves a company, PHH, which has been ordered to pay $109 million in restitution for illegal kickbacks to mortgage insurers that caused PHH’s customers to pay extra. After a full hearing before an Administrative Law Judge and then the CFPB’s Director, PHH appealed the CFPB’s decision to the U.S. Court of Appeals for the D.C. Circuit. Among a slew of arguments raised by the company, the court expressed particular interest in one. The three-judge panel, which will hear oral arguments on April 12, has asked the parties to focus on the constitutionality of statutory limits on the president’s authority to remove the sole head of an agency like the CFPB.
    By statute, the president may remove the CFPB Director only for “inefficiency, neglect of duty, or malfeasance in office.” 12 U.S.C. § 549(c)(3). PHH argues that the Constitution requires an agency headed by a single officer to be removable by the president without cause. Fortunately, Supreme Court precedents defining the scope of the removal power foreclose that argument.
    The central flaw of PHH’s argument is that the Constitution is silent about whether an agency should be headed by a committee or a single officer. In fact, prior litigants have argued that multi-member heads of agencies are constitutionally suspect. The Supreme Court rejected that argument in Free Enterprise Fund v. Public Company Accounting Oversight Board (2010), embracing the view that agencies with a single head or a multi-member commission are constitutionally equivalent.
    The Supreme Court decided in Humphrey’s Executor v. United States (1935) that statutory restrictions on the removal of Federal Trade Commission (FTC) commissioners, and by extension the heads of other administrative agencies, were constitutional. To support the flimsy claim that there is a constitutional difference between single-director and multi-commissioner agencies, PHH relies on stray language in Humphrey’s Executor referring to the FTC’s character as a multi-member body and suggesting those passages add up to a constitutional limitation. But Humphrey’s Executor itself says that whether the Constitution requires the president to enjoy unfettered authority to remove the head of an agency “depend[s] upon the character of the office.”
    As the Supreme Court explained in Wiener v. United States (1958), “the most reliable factor for drawing an inference regarding the president’s power of removal . . . is the nature of the function that Congress vested” in the agency. The CFPB is characteristic of the administrative agencies for which the Supreme Court has upheld for-cause removal. In Humphrey’s Executor, the Court explained that “[i]n administering the [prohibition] of ‘unfair methods of competition’ — that is to say in filling in and administering the details embodied by that general standard — the [FTC] acts in part quasi-legislatively and in part quasi-judicially.” The CFPB has the same quasi-legislative and quasi-judicial responsibilities to define and enforce the prohibition of “unfair, deceptive, or abusive act[s] or practice[s]” in consumer finance, 12 U.S.C. § 5531, as well as to make rules and enforce enumerated consumer finance statutes, 12 U.S.C. § 5481(12).
    Ultimately, the concern animating the removal cases is whether, as the Court said in Morrison v. Olson (1988), “the Executive Branch [retains] sufficient control . . . to ensure that the President is able to perform his constitutionally assigned duties.” It’s certainly plausible that the president could find that a single officer was guilty of “inefficiency, neglect of duty, or malfeasance in office.” In Bowsher v. Synar (1986), the Supreme Court said those “terms are very broad and . . . could sustain removal . . . for any number of actual or perceived transgressions . . . .” But it is quite difficult to envision a scenario in which the president could plausibly claim that a majority of an agency’s commissioners met the criteria for removal. Moreover, responsibility for the failures of an agency headed by a multi-member commission are inherently more diffuse than for an agency with a single-director, giving the president less ability to identify the source of “inefficiency” and “neglect” in a multi-member commission than a single director. So PHH’s proposed rule – that the president’s removal power can only be limited for multi-member agencies – has it backwards. If anything, limitations on the removal power for a multi-member agency would be more suspect than those limitations on single-director agencies, so it’s not surprising that PHH cannot cite a single case adopting their proposed rule.
    A decision striking down the CFPB’s structure would not only break new constitutional ground, it would have wide-reaching practical consequences as well. Such a holding would mean that the structures of at least three other agencies are also unconstitutional because they are headed by a single official removable only for cause:
    the Federal Housing Finance Administration, 12 U.S.C. § 4512(b)(2) (removal “for cause”);
    the Office of Special Counsel, 5 U.S.C. § 1211(b) (removal “only for inefficiency, neglect of duty, or malfeasance in office”); and
    the Social Security Administration, 42 U.S.C. § 902(a)(3) (removal “only pursuant to a finding by the President of neglect of duty or malfeasance in office”).
    For the president to remove the head of a fifth agency, the Office of the Comptroller of the Currency, “reasons” for the removal must be “communicated by [the President] to the Senate,” 12 U.S.C. § 2, suggesting that the president does not have the power to do so without cause. So if the attack on the CFPB’s structure succeeds, it will not hit the CFPB alone.
    Unfortunately, PHH could hardly be more fortunate in the panel drawn to decide this issue. All three judges were appointed by Republican presidents. One judge on the panel has suggested in a prior case that he believes the Constitution would be best interpreted to require that all agency heads be removable by the president without cause and that the Supreme Court was mistaken when it decided otherwise 80 years ago. But even if the three-judge panel rules that the CFPB’s structure is unconstitutional, it will hardly have the last word: The CFPB can seek further review by the full D.C. Circuit and the Supreme Court.
    Tags: Brian Simmonds Marshall, Consumer Financial Protection Bureau, financial regulation, Guest Post

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