Justice Department Tells Court CFPB is Unconstitutional

by Stinson Leonard Street - Dodd-Frank and the Jobs Act
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The Department of Justice has filed an amicus brief in the case of PHH Corp. v. Consumer Financial Protection Bureau pending before the United States Court of Appeals for the District of Columbia Circuit and is scheduled for en banc oral argument on May 24, 2017.  The primary issue discussed in the brief is the fact that the CFPB is headed by a single Director who is appointed by the President, with the advice and consent of the Senate, for a term of five years, and who may be removed by the President only for “inefficiency, neglect of duty, or malfeasance in office.”

The Justice Department agrees with the original appellate panels holding that the “for cause” removal provision violates constitutional separation of powers. While for cause removal provisions have been upheld for multiple-member regulatory commissions, the Justice Department views single-headed agency differently.  The brief notes that a single-headed agency lacks critical structural attributes that have been thought to justify “independent” status for multi-member regulatory commissions. Moreover, because a single agency head is unchecked by the constraints of group decision-making among members appointed by different Presidents, there is a greater risk that an “independent” agency headed by a single person will engage in extreme departures from the President’s executive policy.

The Justice Department also believes that the unconstitutional nature of the CFPB organizational structure does not render the CFPB’s entire enabling statute invalid. Rather, the proper remedy for the constitutional violation is to sever the provision limiting the President’s authority to remove the CFPB’s Director.  The brief notes that when confronting a constitutional flaw in a statute, courts generally try to limit the solution to the problem, severing any problematic portions while leaving the remainder intact.  According to the brief, there is no evidence that Congress would have preferred no Bureau at all to a Bureau whose Director was removable at will.

Perhaps echoing the politics behind the Justice Department’s position, House Financial Services Committee Chairman Jeb Hensarling (R-TX) issued the following statement:

“Republicans have said for years that the Bureau is unconstitutionally structured. Its lack of accountability and the unparalleled authority placed in the hands of the Bureau’s unaccountable sole director make the CFPB arguably the most powerful and least accountable bureaucracy in American history.  Owing to its unconstitutional structure, the Bureau’s sole unaccountable director, unlike bipartisan commissions, can act unilaterally to eliminate access to credit options and increase consumer costs.  In addition, the Bureau does not recognize core constitutional principles like the right to due process.  Instead, it relies almost exclusively on its vague or undefined enforcement authority to practice regulation by enforcement.  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.  I applaud the Department of Justice for recognizing this unconstitutional CFPB must not stand and must not continue to harm the very consumers it is supposed to protect.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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