The Consumer Financial Protection Bureau, whose regulatory and enforcement mission faces a threat from the Donald Trump administration and Republicans in Congress, on Friday asked a federal appeals court in Washington to rehear a dispute over the constitutionality of the agency's power structure.
A three-judge panel of U.S. Court of Appeals for the D.C. Circuit in October struck down the structure of the CFPB, ruling that the agency placed "massive, unchecked power" in the hands of a single director. Writing for the panel, Judge Brett Kavanaugh prescribed a fix: allowing the president to remove the CFPB director at will, rather than only "for cause."
Richard Cordray has led the agency, created by the Dodd-Frank Wall Street reform law, since 2012. The U.S. Senate confirmed him in July 2013 for a five-year term.
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"A panel of this court has rendered a dramatic and unprecedented ruling that purports to override Congress's explicit determination to create 'an independent bureau' to exercise regulatory and law enforcement authority in a particular segment of the economy," lawyers for the CFPB wrote.
The CFPB argued that the D.C. Circuit panel's decision conflicts with a 1935 decision from the U.S. Supreme Court in Humphrey's Executor v. United States. According to the CFPB, that decision endorsed Congress' ability to create independent agencies where at least one individual is appointed by the president, confirmed by the Senate and protected from "summary removal."
"This decision also presents an issue of exceptional importance because it unduly limits Congress's flexibility to respond to 'the various crises of human affairs,' by creating independent administrative agencies headed by a single director," the agency said in Friday's D.C. Circuit filing. "And it may affect not only the bureau but also other agencies headed by a single director removable only for cause."
The CFPB named the Social Security Administration, Federal Housing Finance Agency and Office of Special Counsel as examples.
Trump's transition team has promised to "dismantle" Dodd-Frank, but the president-elect has not offered specific details about what steps he would take to deregulate the financial industry. Republicans in Congress have sponsored legislation that would strip the agency of its single-director structure in favor of a bipartisan leadership team like that of the U.S. Securities and Exchange Commission.
Trump will be powerless on Jan. 20, when he takes office, to remove Cordray without cause. The challenge to the panel ruling could run for months, if not more than a year. Until then, the panel decision's ruling against the CFPB cannot be enforced.
"This is a case about executive power and individual liberty," Kavanaugh wrote in the panel decision. "The U.S. government's executive power to enforce federal law against private citizens—for example, to bring criminal prosecutions and civil enforcement actions—is essential to societal order and progress, but simultaneously a grave threat to individual liberty."
Kavanaugh said the CFPB director "enjoys more unilateral authority than any other officer in any of the three branches of the U.S. government, other than the president."
One unresolved, immediate issue for the CFPB is the extent to which any previous enforcement actions will survive. The D.C. Circuit expressly declined to take a position on how its ruling will impact earlier CFPB decisions.
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C. Ryan Barber
C. Ryan Barber, based in Washington, covers government affairs and regulatory compliance. Contact him at [email protected]. On Twitter: @cryanbarber
