Consumer advocacy groups, members of congress, and legal scholars file amicus briefs in support of the CFPB’s constitutionality

by Ballard Spahr LLP
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Several individuals and organizations filed amicus briefs in support of the CFPB in the en banc rehearing in the PHH case. Among the amici is a brief filed by current and former members of Congress, including Chris Dodd and Barney Frank, the principal architects and namesakes of the Dodd-Frank Act, which created the CFPB. Senator Sherrod Brown and Representative Maxine Waters, both of whom previously sought to intervene, joined the brief as well.

The current and former members of Congress assert that the structure of the CFPB is constitutional and critical to the congressional design of Dodd-Frank. They stress the importance of the CFPB’s “independence” and the ability of a single director “to avoid the delay and gridlock to which multi-member agencies are susceptible.” These themes are repeated throughout the brief.

Of course, the flipside of independence is unaccountability. The CFPB’s structure heavily shields it from the consequences of an election. The ability of voters to voice their approval or disapproval with the CFPB’s enforcement and rulemaking is far lower than that of other important agencies such as the EPA. And although a single director may be able to move more swiftly than a multi-member commission, faster is not always better. Before a multi-member commission reaches a decision, it must debate the matter internally among a group of commissioners with diverse perspectives and experiences. That internal debate arguably has the ability to produce a better, more efficient outcome than any individual commissioner would be able to reach on their own. Indeed, input from multiple commissioners is particularly valuable to an agency like the CFPB that relies more heavily on enforcement actions than notice-and-comment rulemaking to effect industry-wide change.

A group of financial regulation scholars likewise submitted a brief in support of the CFPB’s position, focused entirely on the constitutionality of the CFPB’s structure. The scholars’ brief is, not surprisingly, more esoteric than many of the other briefs submitted in the case. Unlike the CFPB, the scholars concede that its structure is “novel,” but argue that the novel structure is evidence of a creative legislative approach to an issue, not evidence that it is unconstitutional. The brief then attempts to argue two seemingly inconsistent positions: 1) that the CFPB’s independence is necessary to prevent regulatory capture, but 2) the CFPB is subject to significant oversight.

The scholars’ regulatory capture argument is particularly weak. They claim that three features of the CFPB’s structure are key to preventing business interests from capturing the CFPB: “non-appropriated funding; a for-cause removal standard; and a single director.” The scholars correctly note that industry funding can create regulatory capture in the classical sense in that the regulated industry has direct control over the agency’s funding. That argument has no relevance to the actual issue in this case, however, since the real controversy is whether the CFPB should be subject to Congressional appropriations, not whether it should be industry funded.

The scholars then switch from capture theory to public-choice theory to argue that Congressional appropriation is unwise because concentrated industry groups have greater influence over Congress and the Executive Branch than individual consumers. In making this argument, the scholars focus not on industry capture of the CFPB but of the entire Legislative and Executive Branches. And the activities with which the scholars take issue – lobbying and campaign contributions – are key First Amendment activities. The scholars therefore argue that the CFPB’s structure is necessary because members of the public might exercise their First Amendment rights successfully to oppose the actions of the CFPB.

The scholars then undercut their legislative-and-executive-capture argument completely in the next session of their brief, in which they argue that the CFPB is, in fact, subject to extensive legislative oversight and control. This argument is wholly inconsistent with the prior argument that the CFPB is completely independent and thus immune from capture. Namely, if the CFPB is subject to extensive oversight and control, then it is also subject to Legislative-and-Executive capture.

A group of separation of powers scholars likewise filed an amicus brief heavy on theory. As their name suggests, the separation of powers scholars focus on whether the single director, removable-for-cause feature of the CFPB violates constitutional separation of powers principals. The brief firsts undertakes an originalist-style historical analysis of early federal-and-state executive agencies. Next, the scholars argue that the number of commissioners is irrelevant to the constitutional analysis. Then, they argue that the for-cause removability feature leaves enough Presidential discretion over the CFPB Director to preserve its constitutionality.

Finally, in a preview of arguments likely designed to drive a wedge between Justice Kennedy and other members of the Supreme Court, Chief Justice Roberts in particular, the scholars argue that abstract concerns over the protection of “individual liberty” and separation of powers do not supply independent constitutional bases to invalidate the CFPB structure. Instead, they argue that the structure must violate a specific constitutional provision, not an abstract ideal. This particular line of argument will likely receive greater attention if the constitutional issues reach the Supreme Court, as there are different views regarding it among the conservative majority.

A host of “consumer and civil rights organizations who advocated for the CFPB’s creation,” many of which unsuccessfully sought to intervene, filed a brief that mainly covers public policy arguments in favor of the CFPB’s structure. They essentially argue that the CFPB has succeeded where other agencies failed in terms of protecting consumers.

The AARP also filed an amicus brief in support of the CFPB’s position. Unlike other amici, however, the AARP brief focused more on the RESPA issues in the case than the more esoteric constitutional issues. The AARP claimed that kickbacks and “junk fees” have a disproportionate impact on older individuals.  It argued that older individuals are often the target of “unscrupulous mortgage lending practices,” which increases the cost of homeownership to older individuals by several thousand dollars. After the policy-heavy introduction, the brief tackles the history and purpose of the RESPA provisions at issue, which we blogged about in detail.

Although the constitutional issues received the most attention in the press, the RESPA issues discussed in the AARP brief could very well be more important to the outcome of the appeal. The court could reverse the district court on the RESPA issues and invoke the doctrine of constitutional avoidance to decline to reach the overall constitutionality of the CFPB’s structure.

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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