Constitutional Law

Full DC Circuit upholds structure of Consumer Financial Protection Bureau

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An en banc federal appeals court on Wednesday upheld the structure of the Consumer Financial Protection Bureau along with protections for its director that allow removal only for cause.

The U.S. Court of Appeals for the D.C. Circuit ruled 7-3 in an appeal that had contended the CFPB’s independence violated the president’s authority under the Constitution to “take care that the laws be faithfully executed.” The National Law Journal and Politico have stories.

In an opinion by Judge Nina Pillard, the court called the for-cause removal provisions “a mild constraint,” and said there was no constitutional defect in the CFPB’s single-leader structure.

The CFPB director serves a five-year term and can only be removed during that time for “inefficiency, neglect of duty or malfeasance.”

Pillard said giving 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.”

A three-judge D.C. Circuit panel had issued a contrary ruling in October that found the massive power given to the CFPB director was unconstitutional. Rather than strike down the entire CFPB, the panel struck down the provision requiring cause for removal of the agency’s director.

Judge Brett Kavanaugh wrote the October decision, and he was a dissenter in the en banc decision.

Kavanaugh’s dissent said independent agencies hold enormous power and they “collectively constitute, in effect, a headless fourth branch of the U.S. government.” To mitigate their power, independent agencies have historically been headed by multiple commissioners or board members, he said.

The CFPB, however, has a single director who exercises substantial executive authority and is not accountable to the president, making the structure unconstitutional under the take care clause, he said.

The constitutional challenge was brought by PHH Corp. Though it lost on the constitutional issue, it will be allowed to challenge a $109 million CFPB penalty, according to the National Law Journal coverage.

A separate legal issue before the courts concerns the rightful interim director of the CFPB following the resignation of Richard Cordray late last year.

Leandra English, the agency’s deputy director says Dodd-Frank Act makes her temporary director, while President Donald Trump contends his pick, Mick Mulvaney, is the acting director. A lower court judge has ruled for Mulvaney.

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