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CRS Reports & Analysis
Legal Sidebar
D.C. Circuit Rules Consumer Financial Protection
Bureau's Structure is Unconstitutional
10/17/2016
This is the first of a series of Sidebars focusing on a recent decision by the U.S. Court of Appeals for the D.C. Circuit,
which held unconstitutional a provision of the Dodd-Frank Act barring the President from removing the Director of the
Consumer Financial Protection Bureau (CFPB) except 'for cause. This Side bar summarizes the basics of the case and
immediate consequences for the CFPB. Subsequent Sidebars will explore the broader implications of the decision.
A recent decision by the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) recognized constitutional limitations
on Congress's ability to insulate so-called independent agencies from presidential control. Broadly speaking, these are
agencies empowered to enforce federal laws whose heads are not removable by the President at will, but only for
cause, which is often defined to require the termination be for inefficiency, neglect of duty, or malfeasance in office.
In practice, this means that Presidents have not removed independent agency heads because of political disagreements.
On October 11, 2016, in PHH Corp. v. 7FPB, a three-judge panel of the D.C. Circuit invalidated a provision of the
Dodd-Frank WLall Street Reform and Consumer Financial Protection Act that insulated the Director of the CFPB from
removal by the President except for cause, but provided for a limited remedy. Specifically, the Court invalidated the
for cause removal restriction for the Director of the CFPB, allowing the President to more freely remove the Director
from his service.
Congress created the CFPB through the Dodd-Frank Act, a law that generally consolidated and expanded federal
regulation of consumer financial products. The agency is statutorily authorized to issue regulations and bring
enforcement actions and impose penalties against individuals found to violate a variety of statutes and CFPB rules.
Supporters of the CFPB's structure argue that its independence permits the agency to adopt policies free from political
pressures, while opponents criticize the lack of accountability that follows from this insulation from presidential control.
Here, the D.C. Circuit was asked to review the CFPB Director's partial affirmation of an administrative ruling that a
mortgage lender, PHH, violated the Real Esa lement Procedures Act (a previous Sidehar described PHH's
constitutional arguments in more depth). All three judges on the circuit panel agreed that the CFPB's decision was
inconsistent with the relevant governing statute, and agreed to vacate the order on those grounds. In addition, two of the
three judges held that for cause removal protection for an independent agency headed by a single director, rather than
a multi-member commission or board, violated the Constitution's separation of powers.
The majority opinion in PHH Corp., written by Judge Brett Kavanaugh, focused on two primary themes: (1) a purported
lack of a historical analog for the structure of the CFPB, and (2) at least in the court's view, an absence of accountability
for the Director's actions. The court began by observing that the Constitution's separation of powers necessitates that
the executive power, in particular, be entrusted in a President who is held accountable by the people - a constitutional
feature that prevents Congress from allowing unaccountable officials to enforce the law. Judge Kavanaugh relied on the
Supreme Court's 1926 decision in Myers v. United States, which he described as recogniz[ing] the President's Article
II authority to supervise, direct, and remove at will subordinate officers in the Executive Branch. Of course, Judge
Kavanaugh continued, the Supreme Court's subsequent 1935 decision in Humphrey's Executor v. Inited tes upheld
Congress's power to create an independent agency headed by multi-member expert boards whose members are
removable by the President only for cause. Judge Kavanaugh appeared to read Humphrey 's Executor as a somewhat
limited exception to the general rule endorsed in Myers that executive branch officers must be accountable to the](ViewImageLocal?handle=hein.crs/crsmthmanxl0001&div=1&collection=&method=preview&ext=.png&size=3)