On Tuesday March 3, the same day that the U.S. Supreme Court heard oral argument in Seila Law, the Fifth Circuit, in a 2-1 decision, ruled in All American Check Cashing that the CFPB’s structure is constitutional.

In the underlying case, All American Check Cashing moved to dismiss a CFPB enforcement action filed against it in a Mississippi federal district court on the grounds that the Dodd-Frank Act’s for-cause removal provision violates the separation of powers in the U.S. Constitution.  The district court denied the motion to dismiss, holding that the Bureau’s structure was constitutional, and then certified its order for interlocutory appeal which the Fifth Circuit agreed to hear.  After the Fifth Circuit heard oral argument in All American Check Cashing, the Fifth Circuit granted the petition for en banc review in Collins v. Mnuchin which involved a similar constitutional challenge to the structure of the Federal Housing Finance Agency (FHFA).  The en banc Fifth Circuit reinstated the portion of the Fifth Circuit panel’s opinion in Collins which held that the FHFA’s structure was unconstitutional because the provision of the Housing and Economic Recovery Act of 2008 that only allows the President to remove the FHFA Director “for cause” excessively insulated the agency from Executive Branch oversight.

In reinstating this portion of the panel’s opinion, the en banc court in Collins observed that the panel had “distinguishe[d] the D.C. Circuit’s PHH decision.”  The panel had stated that it was “mindful” of the D.C. Circuit’s en banc PHH decision finding the CFPB’s structure to be constitutional but that “salient distinctions between the agencies compel a contrary conclusion.”  The panel had observed that, unlike the Federal Housing Finance Oversight Board that oversees the FHFA, the Financial Stability Oversight Council (FSOC) can directly control the CFPB’s actions because it holds veto-power over the CFPB’s policies.  It concluded that the absence of formal oversight of the FHFA by the Executive Branch, combined with the for-cause removal provision, made the FHFA’s structure unconstitutional.  Having withheld its decision in All American Check Cashing pending the en banc Fifth Circuit’s decision in Collins, the Fifth Circuit panel in All American Check Cashing held a second round of oral argument regarding the effect of Collins.

In All American Check Cashing, in an opinion written by Judge Higginbotham in which Judge Higginson concurred, the court concluded that the CFPB’s structure “is well within the constitutional lines drawn by the Supreme Court [regarding limits on the President’s removal power.]”  The opinion rejected All American Check Cashing’s attempt to distinguish the U.S. Supreme Court’s 1935 decision in Humphrey’s Executor which upheld a for-cause removal provision for FTC Commissioners on the grounds that the FTC is a multi-commissioner agency rather than an agency led by a single director.  (In Seila Law, both Seila Law and the DOJ have made a similar attempt to distinguish Humphrey’s Executor.)  In the majority’s view, the CFPB’s single-director structure “mitigates the constitutional concerns underlying for-cause removal.”  The majority observed that before 2008, seven agencies shared responsibility for consumer protection and that “the diffusion of responsibility looked past regulatory arbitrage and undercut accountability” because “a President determined to change the administration of consumer financial protection would have faced a bureaucratic maze—multiple multi-member agencies with disparate authorities spread across eighteen statutes.”  According to the majority:

The CFPB’s single-leader structure places responsibility, public scrutiny, and political pressure on the shoulders of one individual, preventing the risk of buck-passing that may undermine the accountability of some multi-member agencies.  And it allows the President to exercise tighter control over the CFPB, as the President need only remove the Director, not several commissioners, to change its direction.  His appointees are positioned with firm control.

The majority also stated that if the CFPB’s constitutionality was in doubt, the court should exercise constitutional avoidance by reading the for-cause removal standard to impose a lesser limit on the President’s removal power.  The Dodd-Frank removal standard allows the President to remove the CFPB Director for “inefficiency, neglect of duty, or malfeasance in office.”  The majority offered case law and dictionary support for interpreting “inefficiency” to encompass policy disagreements.  (A similar argument was made in Seila Law by Paul Clement, the Court-appointed amicus curiae who defended the CFPB’s constitutionality.)

Judge Smith, in a dissenting opinion, concluded that CFPB’s structure is unconstitutional because it “enjoys the identical insulation [from Presidential oversight] that we held unlawful in Collins.  The glove fits.”  He observed that while the President can influence multi-member agencies “by designating their chairs and removing them at will from that position,” in a single-director agency, “a President can find himself ‘stuck for years’ with a Director selected by a predecessor and opposed to the current administration’s policies.”  He also noted that the President’s oversight is further reduced when an agency does not rely on appropriations because the President loses the ability to oversee the agency by vetoing spending bills related to the agency and submitting annual budgets to Congress.  (At the Seila Law oral argument, Chief Justice Roberts raised the CFPB’s funding outside of the appropriations process as a potential factor for the Court to consider.)

Judge Smith also rejected the majority’s assertion that Collins did not control because the en banc Fifth Circuit had distinguished the D.C. Circuit’s en banc PHH decision and the FSOC’s role in controlling the CFPB’s actions.  In his view, the en banc Fifth Circuit’s discussion of the CFPB and the FSOC’s role was dictum and “was plainly not a pillar upon which Collins stood or fell, but only an observation by some judges to show that they were focusing on the particulars of the agency at issue.”  He noted that although the FSOC has veto authority as to CFPB rulemaking, it has no authority over the CFPB’s enforcement actions and also reviewed the limitations on the President’s ability to appoint and remove FSOC voting members.  According to Judge Smith, “it is hard to imagine an oversight council with less capacity to oversee.”

Judge Higginson wrote a separate opinion affirming the district court’s ruling in which he stated that although he would have preferred for the panel to have held its decision in All American Check Cashing in abeyance until the Supreme Court decides Seila Law, his preference “was unpersuasive [with his colleagues] for reasons [he] respect[s].”  He also stated that he was “confident that views [his colleagues] may choose to elaborate will offer new insights to the Supreme Court.”  The issuance of the panel’s decision on the same day as the oral argument in Seila Law has sparked criticism, with one commentator suggesting that should Mr. Clement file the decision with the Supreme Court in Seila Law as additional authority supporting his position that the CFPB’s structure is constitutional, the Supreme Court should provide the parties an opportunity to file supplemental briefs.