CFPB Wins a Battle, But Will it Win the War?

At the end of 2016, we wrote about an October 2016 decision by the United States Court of Appeals for the District of Columbia Circuit.  It found that the Consumer Financial Protection Bureau’s structure violates Article II of the Constitution because the CFPB operates as an independent agency headed by a single director not subject to removal by the President except for cause.   The Court held that either the CFPB’s Director must be removable at will by the President, so the CFPB can operate as a traditional executive agency, or if structured as an independent agency, the CFPB must be structured as a multi-member commission.

Traditionally, independent agencies have operated as multi-member bodies of experts, designed to avoid the suspicion of partisanship.  By statute, certain independent agencies must include members of both political parties. Unlike most other independent government agencies, the CFPB was created by Congressional Democrats, who had a filibuster-proof majority in Congress when they passed the Dodd Frank financial reform legislation along party lines to be free from oversight except by the courts.  It made the Director of the CFPB removable only for cause during the Director’ fixed five-year term, which is for “inefficiency, neglect of duty, or malfeasance in office.”   As the Court stated, “The CFPB has the power to impose a wide range of legal and equitable relief, including restitution, disgorgement, money damages, injunctions, and civil monetary penalties.  And all of this massive power is lodged in one person – the Director – who is not supervised, directed, or checked by the President or by other directors.”   Essentially the CPFB Director has significantly more unilateral power than any single member of any other independent agency.   The Court went as far to say that the CFPB Director is the single powerful official in the entire United States Government, other than President, at least when measured in unilateral power.

Because of this Court decision, the CFPB filed a petition for rehearing.  On February 16, 2017, the Court granted the CFPB’s petition for rehearing en banc.  Effectively, the CFPB won a battle because by granting the petition for rehearing, the Court puts on hold the October 2016 decision that found the CFPB’s structure unconstitutional.  The “en banc” rehearing will allow 10 judges to revisit the October 2016 decision by a three judge panel.

Even though the CFPB won the battle by having its rehearing petition granted, it now must convince 10 judges that its structure as a single-Director independent agency follows Article II of the Constitution.  The Court also requested that the parties address the issue of whether the proper remedy is to sever the for-cause only termination provision of the Director under the Dodd-Frank Act if the CFPB’s structure is unconstitutional.

In another twist, on March 3, 2017, the U.S. Department of Justice filed an Unopposed Motion for Leave to File an Amicus Brief against the CFPB by March 17, 2017.  It does not come as a shock that the Department of Justice will file an amicus brief against the CFPB because of President Trump’s expressed opposition to the Dodd-Frank Act and the CPFB.

The final en banc hearing will be held on May 24, 2017.   The Court will probably decide by the fall 2017, but even if the CFPB and its supporters succeed in the en banc consideration there are significant questions whether they will ultimately win the war.

The Trump administration has many priorities ahead of solving the dictatorial structure of the CFPB, but eventually either the President or Congress will take action.  The President can find cause to terminate the existing Director or can appoint a CFPB reform-minded Director when the present Director’s term ends.  Or Congress may act to restructure the Bureau as a more traditional multi-member commission.