The CFPB Is Too Independent to Be Constitutional, D.C. Cir. Rules

By Casey C. Sullivan, Esq. on October 24, 2016 | Last updated on March 21, 2019

The Consumer Financial Protection Bureau was established in the wake of the 2007 financial meltdown that gave birth to the "Great Recession." Created by the 2010's Dodd-Frank Act, the CFPB was to operate as a Wall Street watchdog agency. To ensure its independence from political interference, it was to have a single director who, once appointed, could only be removed for cause.

That level of independence, however, was too much for the D.C. Circuit. A three judge panel ruled earlier this month that the CFPB's structure gave too much authority to its director, in violation of the executive powers given to the President. An independent director who could not be fired without cause, the court found, was a "threat to individual liberty."

The Unitary Executive Ascendant

"This is a case about executive power and individual liberty," Judge Brett M. Kavanaugh writes at the opening of the court's opinion. To limit the government's power to execute laws against private citizens, the court explains, the Founders delegated it to the President, "who is elected and accountable to the people."

The President's officers, in turn, aid in the execution of the laws through various government agencies. Some officers can be easily removed; some are more independent, removable only for cause.

Congress's power to create independent agencies to exercise executive power was upheld in Humphrey's Executor. But, as the D.C. Circuit notes, most of those independent agencies, the so-called "fourth branch" of government, are helmed by multiple commissioners or directors. "The multi-member structure reduces the risk of arbitrary decisionmaking and abuse of power, and thereby helps protect individual liberty," the D.C. Circuit wrote.

The CFPB, however, breaks from that pattern:

Because the CFPB is an independent agency headed by a single Director and not by a multi-member commission, the Director of the CFPB possesses more unilateral authority -- that is, authority to take action on one's own, subject to no check -- than any single commissioner or board member in any other independent agency in the U.S. Government.

That, the court found, was a violation of the Constitution's separation of powers.

What Happens Next?

What's this mean for the CFPB? Though the opinion is a direct embrace of a contentious constitutional theory, that of the unitary executive, it has only limited immediate impacts for the CFPB. The agency will not disappear or have its powers greatly curtailed. Instead, the court put forward a relatively easy solution:

The president now will have the power to remove the director at will, and to supervise and direct the director. The C.F.P.B. therefore will continue to operate and to perform its many duties, but will do so as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice and the Department of the Treasury... The President is a check on and accountable for the actions of those executive agencies, and the President now will be a check on and accountable for the actions of the CFPB as well.

That is, if the court's decision stands. The government is likely to appeal, asking for the case to be reheard either en banc or before the Supreme Court.

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