The CFPB:  A warning about the presidential power of removal?

By Holly Clancy*

Last May we saw President Trump fire FBI director James Comey.[1]  Despite the political blowback and barring any criminal motives, this appeared a legally permissible exercise of the executive power of removal.[2]  While the courts “have sustained in certain cases limits on the President’s removal power,”[3] these have been narrow and strictly case-by-case.[4]  The most recent of these judicial challenges is currently pending a decision on rehearing in the D.C. Circuit Court.[5]

The Consumer Financial Protection Bureau (CFPB) evolved from the proposal of current Massachusetts Senator, then Harvard Law professor, Elizabeth Warren.[6]  Born from the housing crisis of the late aughts, it serves to protect the consumer from exploitative financial products, including subprime mortgages and student loans.[7]  Crucially, a single director, who can be removed by the president only for “inefficiency, neglect of duty, or malfeasance in office,” heads the CFPB.[8]  An independent agency, the bureau falls under the umbrella of the Federal Reserve.[9]  In this way, it is similar to the Federal Trade Commission (FTC), another consumer protection agency, which was the subject of one of the best-known challenges to the presidential power of removal.

In 1935, the Supreme Court decided Humphrey’s Executor v. United States—holding that the president does not have an immutable power to remove appointees to independent agencies at will.[10]  “[R]emoved from the office of Commissioner of the Federal Trade Commission” by President Roosevelt, Humphrey challenged his termination and sued for back pay.[11]  The Federal Trade Commission Act, which established the FTC in 1914, contained language identical to that of the Consumer Financial Protection Act, allowing removal of a commissioner by the president only “for inefficiency, neglect of duty, or malfeasance in office.”[12]

Today we see a challenge to the CFPB on a similar theory in PHH Corp. v. Consumer Financial Protection Bureau.  PHH challenges a penalty levied against them by the CFPB, questioning the constitutionality of the bureau’s single director, removable only for cause, structure.[13]  They argued, and the D.C. Circuit panel agreed, that the CFPB could be distinguished from Humphrey’s Executor, as a panel of five politically diverse commissioners heads the FTC.[14]  The CFPB petitioned for rehearing en banc, which was granted with a direction from the court for the parties to address whether “the CFPB’s structure as a single-Director independent agency [is] consistent with Article II of the Constitution” in their papers.[15]  Oral argument was heard on May 24, 2017.

Despite a Comey-inspired gut reaction to restrict the president’s removal power, it seems that the court will again rule against the CFPB.  Putting aside the obvious, that the same court has done so once already, oral argument focused heavily on whether, and how, the CFPB’s structure impairs the Article II power of the presidency to a greater extent than do multi-member panels, a question that the court’s original decision also gave great weight.[16]  Judge Kavanaugh, unsurprisingly as the author of the October 2016 decision, seemed at times to make Petitioner’s arguments for them—even stepping in to answer another panel member’s question and holding the proverbial feet of the CFPB to the fire on the tradition of executive turnover.[17]  Judge Griffith quoted directly from Petitioner’s brief when he asked Respondent’s counsel whether it is true that “[n]ever before has so much federal power been concentrated in the hands of one person so thoroughly shielded from constitutional accountability.”[18]  Judge Wilkins, one assumes not seriously, seemed to suggest that the president could pay the director for the remainder of his term but replace him in order to accord with Humphrey’s Executor.[19]

To complicate matters further, on November 15, 2017 Director Cordray of the CFPB announced his resignation.[20]  Following Cordray’s departure, President Trump filled his position with Mick Mulvaney, Director of the Office of Management and Budget, on the authority of the Federal Vacancies Act.[21]  Leandra English, Deputy Director of the CFPB under Cordray, filed for a temporary restraining order in the D.C. District Court, arguing that Cordray had appointed her to fill his position prior to his departure, and that a provision of Dodd Frank installing the Deputy Director after a Director resigns controlled over the Vacancies Act.[22]  On November 28, Judge Timothy Kelly (a recent Trump appointee to the bench) ruled for Mulvaney on the issue of the restraining order.[23]  Then, just two weeks ago, Judge Kelly denied English’s request for an injunction, which would have removed Mulvaney from the position.[24]

Prior to Cordray’s resignation, one conceivable consequence of PHH was a restructuring of the CFPB to mirror the FTC and similar agencies—replacing the single director with a board or panel.  The court appeared to view this as a desirable result, referencing the possibility several times during oral argument.[25]  However, the court also suggested that no matter its decision this case is bound for the Supreme Court.[26]  While the circuit court is likely to defer to the general principle that the presidential power of removal should control the CFPB, it recognized that the Supreme Court might deem it necessary to create a Humphrey’s-esque carve out for the bureau.[27]

Given Mulvaney’s assent to the director position, it seems unlikely that the case will have nearly as large an impact as was expected.  Prior to Cordray’s resignation, the DOJ entered the dispute on the side of PHH, supporting the argument that the structure was unconstitutional.[28]  Now that the administration controls the CFPB and can weaken it from the inside,[29] it is unlikely that the bureau will take an appeal to the Supreme Court should they lose the pending case.  Cordray’s resignation may serve to doom the organization’s mission irrespective of the court’s ruling.

*Holly Clancy is a Junior Editor at MJEAL.  She can be reached at clancyh@umich.edu.


The views and opinions expressed in this blog are those of the authors only and do not reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.

[1] Michael Shear & Matt Apuzzo, F.B.I. Director James Comey Is Fired by Trump, The New York Times (May 9, 2017), https://www.nytimes.com/2017/05/09/us/politics/james-comey-fired-fbi.html.

[2] Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 561 U.S. 477, 513-14 (2010) (“The Constitution that makes the President accountable to the people for executing the laws also gives him the power to do so.  That power includes, as a general matter, the authority to remove those who assist him in carrying out his duties.”); see also U.S. Const. art. II § 1 (“The executive Power shall be vested in a President of the United States of America.”).

[3] Free Enterprise, 561 U.S. at 514.

[4] See Humphrey’s Ex’r v. United States, 295 U.S. 602 (1935); Morrison v. Olson, 487 U.S. 654 (1988).

[5] Jonathan H. Adler, Court rules Consumer Financial Protection Bureau is subject to constitutional constraints, The Washington Post (Oct. 12, 2016), https://www.washingtonpost.com/news/volokh-conspiracy/wp/2016/10/12/court-rules-consumer-financial-protection-bureau-is-subject-to-constitutional-constraints/?utm_term=.e70ac68b02de.

[6] Elizabeth Warren, Unsafe at Any Rate, Democracy, Summer 2007.

[7] 12 U.S.C. § 5491(a) (The Consumer Financial Protection Act of 2010 (Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act) established the CFPB as a watchdog to “regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws.”); Jean Eaglesham, Warning Shot on Financial Protection, The Wall Street Journal (Feb. 9, 2011), https://www.wsj.com/articles/SB10001424052748703507804576130370862263258?mod=googlenews_wsj.

[8] 12 U.S.C. § 5491 (The director is appointed by the President “with the advice and consent of the Senate” for a term of five years and can be removed by the President only for “inefficiency, neglect of duty, or malfeasance in office.”); Director Richard Cordray, Consumer Fin. Prot. Bureau, https://www.consumerfinance.gov/about-us/the-bureau/about-director/ (last visited Nov. 12, 2017).

[9] Consumer Financial Protection Bureau, Fed. Register, https://www.federalregister.gov/agencies/consumer-financial-protection-bureau (last visited Nov. 12, 2017).

[10] Humphrey’s Ex’r, 295 U.S. 602.

[11] Id. at 619.

[12] 15 U.S.C. § 41.

[13] Opening Brief for Petitioners at 45, PHH Corp. v. Consumer Fin. Prot. Bureau, No. 15-1177 (D.C. Cir., Sept. 28, 2015).

[14] Opening Brief for Petitioners at 47; PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 12 (D.C. Cir., 2016) (“[I]n light of the threat to individual liberty posed by a single-Director independent agency, we conclude that Humphrey’s Executor cannot be stretched to cover this novel agency structure.”); 15 U.S.C. § 41.

[15] PHH Corp. v. Consumer Fin. Prot. Bureau, No. 15-1177, 2017 WL 631740, at *5-6 (D.C. Cir., Feb. 16, 2017).

[16] Transcript of Oral Argument at 4, 6, 13, 15-16, 24, 65-66, PHH Corp. v. Consumer Fin. Prot. Bureau, No. 15-1177 (D.C. Cir., May 24, 2017); PHH Corp., 839 F.3d at 33-34.

[17] Transcript of Oral Argument at 18 (“JUDGE TATEL:  Thank you for answering my question.  JUDGE KAVANAUGH:  I’m trying to.”), 50-54.

[18] Transcript of Oral Argument at 56.

[19] Transcript of Oral Argument at 77-78.

[20] Renae Merle, Richard Cordray is stepping down as head of Consumer Financial Protection Bureau, The Washington Post (Nov. 15, 2017), https://www.washingtonpost.com/news/business/wp/2017/11/15/richard-cordray-is-stepping-down-as-head-of-consumer-financial-protection-bureau/?utm_term=.387fdb62810f.

[21] Renae Merle, Leandra English, the woman at the center of a White House battle for control of the CFPB, files lawsuit against Trump pick to lead watchdog agency, The Washington Post (Nov. 26, 2017), https://www.washingtonpost.com/news/business/wp/2017/11/26/who-is-leandra-english-the-woman-at-the-center-of-a-white-house-battle-for-control-of-the-cfpb/?utm_term=.5ecd57408d14.

[22] Id.

[23] Victoria Guida, Court sides with Trump in CFPB leadership dispute, Politico (Nov. 28, 2017), https://www.politico.com/story/2017/11/28/trump-court-mulvaney-consumer-protection-bureau-265051.

[24] Jim Puzzanghera, Judge denies injunction to remove Mick Mulvaney as consumer bureau’s acting director, Los Angeles Times (Jan. 11, 2018), http://beta.latimes.com/business/la-fi-cfpb-acting-director-20180110-story.html.

[25] Transcript of Oral Argument at 7, 10, 19, 81.

[26] Transcript of Oral Argument at 11, 15, 25-26.

[27] For an analogous consideration of the Independent Counsel Act in view of the Appointments Clause of the Constitution, 3see Morrison v. Olson, 487 U.S. 654 (1988).

[28] Ben Lane, In major reversal, U.S. sides with PHH, calls CFPB structure unconstitutional, HousingWire (Mar. 17, 2017), https://www.housingwire.com/articles/39615-in-major-reversal-us-sides-with-phh-calls-cfpb-structure-unconstitutional.

[29] See Stacy Cowley, Consumer Watchdog’s Latest Budget Request:  $0, The New York Times (Jan. 18, 2018), https://www.nytimes.com/2018/01/18/business/cfpb-mick-mulvaney.html.  While largely symbolic given the CFPB’s reserve fund, Director Mulvaney’s request is a symbolic indicator of the future of the agency.

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