DC Circuit Decision on CFPB Leadership

Julius “Jerry” Loeser

Today, the U.S. Court of Appeals for the District of Columbia, sitting en banc, issued its decision in PHH Corporation, et al. v. Consumer Financial Protection Bureau, on whether the provision in the Dodd-Frank Act  that the director of the CFPB cannot be removed by the President for any reason other than “inefficiency, neglect of duty, or malfeasance” is consistent with Article II of the Constitution vesting executive power in the President who is to “take care that the Laws be faithfully executed.”  The Court ruled that this provision of the Dodd-Frank Act is consistent with Article II.  Besides the Court’s opinion, three concurring opinions and three dissenting opinions were filed.  Nonetheless, on the underlying merits of the enforcement matter that was at issue, the Court held for PHH and against the CFPB.

In upholding this provision of the Dodd-Frank Act, the Court relied heavily on a 1935 Supreme Court case, Humphrey’s Executor v. U.S., in which the Supreme Court upheld the independence of the Federal Trade Commission members from at-will removal by the President.  The Court’s opinion explained that, after the 2008 financial crisis, Congress, in enacting Dodd-Frank and establishing the CFPB, collected “under one roof existing statutes and regulations … to give them a chance to work.”  Implying that these statutes and regulations had not had “a chance to work” before that may reflect more of a policy judgment than a legal judgment.  The Court distinguished two Supreme Court cases in which the Supreme Court struck down Congress’ limitation of Presidential removal authority.  It also noted that historically Congress has provided independence to financial regulators to shield the economy from political manipulation.

The 1935 case on which the Court relied, some might argue, has given rise to an unresponsive federal bureaucracy unaccountable to the electorate.  If the PHH case is appealed to the Supreme Court either by PHH or by the CFPB, it could be an opportunity to reverse that trend.

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