//  4/12/17  //  Commentary

When historians look back on the Obama era’s legislative achievements, it’s likely that the Affordable Care Act will take top billing, followed closely behind by the Dodd-Frank Wall Street Reform Act of 2010 and its crown jewel: the Consumer Financial Protection Bureau.

But a dramatic legal showdown now unfolding before the en banc D.C. Circuit threatens the CFPB’s future. This extraordinary fight features warring briefs between two federal agencies—between lawyers for the Trump administration’s Justice Department, who argue that Congress created an unconstitutional agency seven years ago, and lawyers for the CFPB, who defend its structure as consistent with settled jurisprudence dating back to the New Deal. The CFPB has called this dispute “the most important separation-of-powers case in a generation.”

Here, we summarize the major issues in the litigation—and explain that, remarkably, DOJ has recently filed a brief in another separation-of-powers case that contradicts the main argument in its brief attacking the CFPB.


The brainchild of law professor (and now Senator) Elizabeth Warren, the CFPB is an independent consumer watchdog. Since opening its doors in July 2011, it’s been a ringing success, cleaning up the sort of shoddy lending practices that led to the 2008 financial crisis. Its first director, Richard Cordray (the former Ohio AG) was confirmed by the Senate in 2013 after a bipartisan group of senators struck a deal to preserve the filibuster. His term is set to end in July 2018. Under Cordray, the CFPB has handled approximately one million consumer complaints and produced over $11.7 billion in relief for more than 27 million consumers.

Despite that success (or, let’s be honest, because of it), the CFPB’s opponents, especially industry lobbyists and their GOP allies in Congress, have set their sights on the agency. And since January, they may have found a new ally in the Trump administration.

The Obama administration had consistently defended the agency’s independence. But last month, Trump’s Justice Department did a 180: it filed a brief arguing that the agency’s leadership structure—a single director removable only for cause—renders it unconstitutional. By way of remedy, the brief asks the D.C. Circuit to give Trump the ability to treat Cordray like a participant on Celebrity Apprentice, firing him at will. (Interestingly, Trump himself has thus far resisted calls from industry lobbyists and GOP members of Congress to fire Cordray for cause, perhaps recognizing the political and legal risk. More on that later.)

The new DOJ brief adopts an extreme and unprecedented separation-of-powers theory that makes little sense as a practical matter. We’ll have more to say about the merits of this blockbuster case in future posts leading up to and after the May 24 argument in the D.C. Circuit; in this post and the one to follow, we want to review how we got here, lay out the stakes for both Trump and the CFPB, and preview what may happen in the coming months.

The CFPB: Designed to Withstand Capture

The CFPB exists for a very good reason. Before its creation, consumer financial protection was badly fragmented across seven different federal agencies. This balkanized regime meant that no single agency bore responsibility for regulating important swaths of the American economy, including mortgages, credit cards, bank deposits, auto loans, student loans, payday loans, and debt collection. As a result, consumer protection dropped down the agencies’ to-do lists, subordinated to their primary missions, and was therefore neglected. Worse, many of these agencies were also financially dependent on the very entities they were supposed to be regulating—the big banks and large financial institutions—leading to what’s known as regulatory capture. The result was a total disaster—a financial crisis, spurred by toxic mortgages, that caused millions of American families to lose their homes and brought the economy to the brink.

To provide accountability and prevent another economic collapse, Congress consolidated regulatory authority in the CFPB. But it didn’t stop there. To ensure that this new agency would truly serve the public—not the industry that it regulates—Congress also designed the CFPB to be as independent as possible: The agency thus has its own funding source, insulated from the appropriations process. And it is led by a single director, appointed by the president and confirmed by the Senate to serve a five-year term. Once confirmed, the director may be removed only for cause, which the law defines as “inefficiency, neglect of duty or malfeasance.” This structure was in fact chosen as a direct response to scholarship about the risks of regulatory capture (perhaps not surprising for an agency with its genesis in a law-review article).

The PHH Case: the “Deep Values of the Constitution”

It is this “for cause” removal provision that is now under attack in the courts. In October 2016, in PHH v. CFPB (an appeal from an enforcement action against a mortgage lender), a panel of the D.C. Circuit held that the for-cause provision, coupled with the agency's single-director leadership, violates the constitutional separation of powers. Writing for himself and one other colleague, Judge Kavanaugh reasoned that the CFPB director is insufficiently accountable to the president because he is not removable at will. Never mind that many other hugely important federal agencies are led by those also removable only for cause (the Federal Communications Commission, the Securities and Exchange Commission, the Federal Trade Commission, the National Labor Relations Board, and the Federal Energy Regulatory Commission, to name five). And never mind that the Supreme Court has expressly upheld the constitutionality of those agencies.

To Judge Kavanaugh, the critical constitutional distinction is that those agencies are led by more than one person, whereas the CFPB is not. His opinion claims that this distinction is grounded in the need to safeguard liberty and in what he calls the “deep values of the Constitution.”

Why does this numerical difference matter from the perspective of our separation of powers? It doesn’t. If the CFPB were led by a commission of three members, all of whom had five-year terms and were removable only for cause, that agency would be constitutional under Judge Kavanaugh’s test. And yet the president wouldn’t have any more authority over this commission than he does over the CFPB’s director. If anything, he’d have less: he’d need to identify a good reason to remove at least two commissioners to exert control over the agency, versus just one. And policy disagreement isn’t enough.

Perhaps that’s why no federal agency has ever been declared unconstitutional for having a single director removable for cause. Not the Office of the Comptroller of the Currency, which has been around since Lincoln occupied the White House. Not the Social Security Administration or Office of Special Counsel, whose single-director, for-cause structures have been in place for decades. And not the Federal Housing Finance Agency, an agency created a few years before the CFPB that shares a similar structure.

The Trump DOJ versus the Trump DOJ

What does the Trump DOJ think about the constitutionality of these agencies? We don’t have to speculate. It filed a brief on February 27 supporting the constitutionality of the Federal Housing Finance Agency. That brief adopted the reasons given in the FHFA’s brief, filed the same day, which describes the separation-of-powers challenge (the one based on Judge Kavanaugh’s opinion in PHH) as “wholly without merit.” Here’s a taste:

It is long settled that Congress is not prohibited from creating independent agencies run by officers removable only for cause. … It is also beyond dispute that Congress may structure agencies to be headed by a single officer. Plaintiffs’ position in this case is that those two aspects are somehow mutually exclusive, i.e., that Congress is forbidden from attaching removal protection to an office unless that office will share leadership with a number of other officers also having removal protection. No authority supports that novel and illogical thesis, and it finds no purchase in the principles that animate separation-of-powers jurisprudence.

The same Justice Department lawyer (Chad Readler, the acting head of the Civil Division) signed both this brief and the PHH brief—within the space of a few weeks. Although Readler later filed an “advisory” in the FHFA case saying that DOJ “does not urge reliance” on the separations-of-powers argument it had adopted earlier, he did not disavow that argument.

The upshot is that the Trump DOJ’s brief in PHH achieves a truly remarkable trifecta: It stands opposite not only another part of the executive branch and a previous administration, but also itself.

Given this extraordinary contradiction in DOJ’s position, which reveals that even Trump’s own lawyers are alarmed at the implications of the unprecedented position they’re advancing in the CFPB litigation, what happens next?  We discuss that in a follow-up post.


Full disclosure: We’re not neutral here. We’ve represented both consumer groups and financial-regulation scholars in the D.C. Circuit litigation, and one of us is a former senior counsel at the CFPB.

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