The United States Court of Appeals for the District of Columbia Circuit affirmed a lower court’s ruling that the Consumer Financial Protection Bureau (CFPB) should act with the same degree of independence as other financial regulators, and as such, the director can only be fired by the President of the United States for cause.
In its January 31, 2018 ruling, the Court held that the President may remove the CFPB director in the event of “inefficiency, neglect of duty, or malfeasance in office.” The President may not remove the CFPB director at will. This provides the same protection to the CFPB Director that is afforded to other federal financial agencies that operate with a degree of independence from the executive branch, including the Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC).
The CFPB’s constitutional status as an independent federal agency was called into question by PHH Corporation after the agency fined the mortgage lender $109 million in 2014 for alleged kickbacks to its mortgage reinsurer division. In a lawsuit, PHH claimed that the CFPB should not be held to the same standard as the FTC or SEC because its structure is different. While the FTC and the SEC have administrative boards that rule on cases brought before them, CFPB decisions are determined solely by its director, who was Robert Cordray, at the time the fine was issued. Thus, PHH claimed, the CFPB does not have internal checks and balances to prevent arbitrary decisions, which makes it constitutionally defective which should allow the President to remove its director at will.
In considering the constitutionality of CFPB’s internal structure, the Court reviewed the legislative history to identify how Congress created the agency in 2010. The CFPB was created through the Dodd-Frank Wall Street Reform and Consumer Protection Act – more simply known as the Dodd-Frank Act – to regulate the consumer loan, home mortgage, credit card and retail banking industries through pre-established laws. Because it is a financial regulatory agency, the CFPB receives a level of independent oversight to prevent the possibility of market manipulation from politicians. Since Congress had afforded the same level of independence to the SEC and the FTC when they were created for the same reason, the Court ruled that Congress had followed historical precedent when it granted the CFPB its independent status – even though the CFPB does not have the same administrative structure as those agencies.
Once the question of the CFPB’s structure was answered, the Court determined that PHH’s argument for allowing the President to arbitrarily remove the agency director held no water. In its ruling, the Court stated that there is no constitutional distinction between an independent agency run by a single person and an independent agency run by a multi-person board. Thus, the same principles hold when the President wants to remove someone from a leadership role at an independent agency – there must be a specific, justifiable cause. Though the Cordray’s original penalty against PHH was vacated by a three-judge panel from the Court of Appeals for the District of Columbia in 2016, the full Court determined that there still was insufficient cause for him to be fired by the President.
All of that said, the CFPB does not have a Congressionally-approved director at the moment. Cordray left towards the end of 2017, and President Donald Trump assigned Office of Management and Budget Director Mick Mulvaney to oversee the agency while he also keeps his other duties. President Trump has not named a nominee for the director’s position, either. Additionally, there is a possibility PHH’s lawsuit against the CFPB could be heard by the Supreme Court, at which time the question of the agency’s structure may resurface.
Still, the Court of Appeals’ ruling should give some sense of relief to those who are the sole leaders of their respective independent federal financial agencies. Their decisions may not always be popular with politicians, up to and including the President, but they should not be fired solely because of them either.