In October 2016, a conservative panel on the D.C. Circuit ruled, 2–1, that too much unilateral power was concentrated in the independent Director of the Consumer Financial Protection Bureau, unconstitutionally infringing upon the President’s Article II executive powers.
In February, the full D.C. Circuit agreed to en banc rehearing of this case—entitled PHH Corporation v. CFPB—meaning that all 11 active judges would decide the case from scratch.
The en banc court heard oral arguments back in May, and on Wednesday reversed the panel and upheld the single-Director structure of the CFPB. The opinion (embedded) was written by Nina Pillard and joined by all of the participating Democratic-appointees.
The CFPB, established in 2010 by the Dodd-Frank Act, is headed by a single Director, who is appointed by the President and confirmed by the Senate. This Director can be removed by the President only for “inefficiency, neglect of duty, or malfeasance in office” (“INM protection”).
As such, mere personal or policy disagreements do not provide a sufficient basis for the Director’s termination. Most commissioners of regulatory agencies—like the Federal Trade Commission, Federal Elections Commission or National Labor Relations Board—enjoy this INM protection, which distinguishes them from Cabinet members who serve entirely at the pleasure of the President.
This independence has become the basis of the modern regulatory state and found constitutional endorsement in the landmark 1935 case of Humphrey’s Executor v. United States.
President Hoover appointed William Humphrey to the Federal Trade Commission for a seven-year term beginning in 1931. Roosevelt became president in 1933, and viewed Humphrey as insufficiently supportive of the New Deal. Roosevelt asked him to resign, but Humphrey refused. On October 7, 1933, Roosevelt fired Humphrey from his position as a commissioner on the FTC.
Humphrey sued, arguing that his termination was invalid because he wasn’t guilty of “inefficiency, neglect of duty, or malfeasance.” The Supreme Court unanimously ruled for Humphrey, holding that INM protection did not infringe upon presidential power.
But Judge Kavanaugh argues that Humphrey’s blessing should extend only to multi-member commissions, not unitary directors.
The Director of the CFPB wields enormous power over American businesses, American consumers, and the overall U.S. economy. The Director unilaterally implements and enforces 19 federal consumer protection statutes, covering everything from home finance to student loans to credit cards to banking practices. The Director alone may decide what rules to issue. The Director alone may decide how to enforce, when to enforce, and against whom to enforce the law. The Director alone may decide whether an individual or entity has violated the law. The Director alone may decide what sanctions and penalties to impose on violators of the law.
“That combination,” Judge Kavanaugh writes, leads to “power that is massive in scope, concentrated in a single person, and unaccountable to the President” and “triggers the important constitutional question at issue in this case.”
Pillard responds that “the constitutional distinction…between the CFPB’s leadership structure and that of multi-member independent agencies is untenable. That distinction finds no footing in precedent, historical practice, constitutional principle, or the logic of presidential removal power.”
Her opinion relied heavily on the 1988 case of Morrison v. Olson, where SCOTUS upheld the Independent Counsel Act, which allowed the appointment of an investigative prosecutor whom the President could not fire.
It’s worth noting that Kavanaugh was joined in his theory only by A. Raymond Randolph. Another GOP-appointee, Thomas Griffith, concurred with the Democratic-majority on the grounds that the INM standard is flexible enough to permit the President to fire the Director for “ineffective policy choices.” Another judge, Karen L. Henderson, dissented on statutory grounds but thought it unnecessary to reach the constitutional questions addressed by Pillard and Kavanaugh.
The last time the Supreme Court considered the constitutionality of an agency’s structure was in 2010, in Free Enterprise Fund v. Public Company Accounting Oversight Board.
The Court split 5–4 against the agency.DONATE
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