DC Circuit Holds Single Member Independent CFPB Unconstitutional
Jack Beermann examines the recent ruling in PHH Corporation v. Consumer Financial Protection Bureau.
In PHH Corporation v. Consumer Financial Protection Bureau, the US Court of Appeals for the DC Circuit, in an opinion by Judge Brett Kavanaugh, held that it was unconstitutional for the CFPB to be headed by a single Director who could not be removed by the president without cause. The consequences of the court’s decision were muted by its decision not to declare the agency completely unconstitutional. Rather, as the Supreme Court did with the Public Company Accounting Oversight Board (PCAOB), the court simply excised the Director’s “for-cause” protection and its implication that the Director was beyond the president’s control and otherwise left the agency and all of its decisions, intact. Thus, the CFPB can go on as before, with the only change being that the president can remove the Director at will and can order the Director to act in accord with presidential policies and priorities.
Judge Kavanaugh’s reasoning in support of this outcome is surprising. The basis for the decision was not that the president, as head of the Executive Branch, needs the power to control the CPFB. Recall that the need for presidential control was the Supreme Court’s basis for invalidating the PCAOB’s for-cause protections. In the case of the CFPB, Judge Kavanaugh’s expressed reason for invalidating the Director’s protection was that “[t]he CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.” In Judge Kavanaugh’s view, the multi-member structure of most independent agencies provides a check on abuse of power that was, unconstitutionally, absent in the case of the CFPB. (Judge Kavanaugh also relies heavily on the history and tradition of plural heads of independent agencies. In this blog, I focus only on the pragmatic reasoning, not the reasoning based on tradition.)
Reliance on the need for an effective check on arbitrary agency action (as opposed to a purely presidential check) as a reason for invalidating a for-cause removal restriction is new, possibly unprecedented. As far as I am aware, the Supreme Court has never employed this reasoning. In the Humphrey’s Executor case, which Judge Kavanaugh characterizes as a departure from the background principle of complete presidential control, the Supreme Court justified protection from removal on the basis that the Federal Trade Commission, the agency headed by Humphrey, exercised judicial and legislative power and thus there was no need for presidential removal power. In fact, the Court hinted that unrestrained removal power over an official exercising those functions might itself violate, or at least undercut, separation of powers. In Morrison v. Olson, the independent counsel case, the Court abandoned this basis for upholding removal restrictions and instead viewed removal restrictions as presumptively constitutional exercises of Congress’s legislative power, subject to invalidation only if they unduly impair the president’s ability to control the execution of the laws. …