The CFPB Monster

Mo

In 2010, as part of The Dodd-Frank Act, Congress created the Consumer Financial Protection Bureau: a powerful, so-called “independent agency” that was charged with enforcing 19 (I kid you not) federal consumer protection statutes that cover everything from home finance to student loans to credit cards to banking practices. The CFPB was given the power to pass rules and regulations, enforce consumer protection laws in federal court, enforce administrative actions before Administrative Law Judges, and issue subpoenas, among other things. The CFPB could also impose wide range of relief, including restitution, disgorgement, money damages, injunctions, and civil monetary penalties.

Typically, agencies fall under the direct control of the President and are part of the executive branch of the government. This means the President has the power to appoint (with Senate advice and consent) and fire, at will, the head of the agency for any or no reason at all. There are exceptions. The Supreme Court, in Humphrey’s Executor, held that the Constitution allows for wholly independent agencies disconnected from the executive branch with members who can only be removed for cause. While I think this is a terrible decision—we should not have a headless fourth branch of government, insulated from and unaccountable to the electorate—the rule of Humphrey’s Executor is fairly well-settled law. But, until the CFPB, these wholly independent agencies were run by multi-member commissions or boards.

The reason the multi-member commissions are acceptable is they, in theory, reflect a concern for safeguarding individual liberties by diffusing power among several commission members. This guards from concentrating too much power in any one insulated and unaccountable person.

Not the CFPB as originally structured, though. Instead, the CFPB was structured to concentrate all of the Bureau’s power in a single individual—the Director—who could only be fired for cause. In 2016, the D.C. Circuit held, in PHH Corp. v. CFPB, that this structure violates separation of powers, specifically the Article II power of the President to execute laws, and is therefore unconstitutional.

The court observed:

Other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.

Also,

The CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decisionmaking and abuse of power, and a far greater threat to individual liberty, than does a multi-member agency.

Instead of striking down Dodd-Frank or the CFPB, however, the court determined that the “for cause” firing provision should be severed from the statute. This effectively made the CFPB a more typical executive agency, with the President retaining the power to supervise and direct the CFPB Director and remove him at will.

Fast forward to mid-November of this year, when the current CFPB Director, Richard Cordray, announced he would resign at the end of November. Cordray was an Obama appointee and the circumstances of his appointment were already clouded from the start by Obama’s attempt to invoke a recess appointment when Congress was not, in fact, in recess. Nevertheless, Cordray was ultimately appointed and remained as Director when Trump took office.

When he resigned this month, Cordray announced, along with his resignation, that he was appointing Leandra English as Deputy Director of CFPB. Cordray and English both contend that Cordray had the power to do this under Dodd-Frank, which allows the Director to appoint a Deputy to “serve as acting Director in the absence or unavailability of the Director.” 12 U.S.C. § 5491.

Notice what the statute does not say. It does not say “vacancy” nor does it refer to resignations. It refers to “absence or unavailability,” which a normal person would understand to mean “the Director is sick” or something similar. Upon Cordray’s announcement, Trump announced he would appoint Mick Mulvaney as acting Director, pursuant to the Vacancies Act, which normally governs Presidential interim appointments. So, both Mulvaney and English showed up to work this week, each claiming to be the lawful interim Director of CFPB.  

A reasonable human being would understand that Trump absolutely had the authority under the Vacancies Act to appoint an interim Director and would acquiesce. Not English. Instead, she filed a lawsuit, claiming she should be interim Director because Cordray is “absent or unavailable” under Dodd-Frank and that that provision, not the Vacancies Act, governs who gets to appoint an interim Director. In other words, under the scheme she and Cordray concocted, Cordray—an unelected, unaccountable bureaucrat—has the authority to appoint his own successor to exercise the tremendous powers of the CFPB.

English’s maneuver raises risks that she, and the Democrats defending her, do not seem to see. First, there is a serious constitutional question raised by the Dodd-Frank provision allowing the Director to appoint the Deputy Director, standing alone, which turns on fairly complicated case law about whether the Appointments Clause in Article II, Section 2 is violated by this arrangement. It’s entirely possible that the provision standing alone is unconstitutional. Not to mention that the purpose of the Appointments Clause, according to the Supreme Court, is to mitigate “the manipulation of official appointments” by strictly limiting the ways in which appointments can be made and the people allowed to make them. What Cordray and English did reeks of manipulation. Second, interpreting the Dodd-Frank provision even more broadly to cover not just absences but also vacancies would be a remarkable, and unprecedented, power grab. The D.C. Circuit has already ruled that the position of CFPB Director holds extraordinarily broad enforcement powers, and that the Director can be removed at will by the President because of that. Permitting the departing Director to name his successor would run right back into the “agency independence” issues the D.C. Circuit warned against.

It is highly unlikely that Cordray’s and English’s maneuver is constitutional. But, more importantly, if they’re right, they could put the entirety of Dodd-Frank or the CFPB at risk.

Here’s why: Remember that the D.C. Circuit determined that the “for cause” removal provision was severable from the remainder of Dodd-Frank, which effectively saved both the statute and the CFPB from being struck down. The question of whether a statutory provision is severable turns on Congressional intent. Specifically, under Supreme Court precedent, courts must decide whether Congress “would have preferred what is left of the statute or no statute at all” and whether the statute is capable of functioning without the unconstitutional provisions “in a manner consistent with the intent of Congress.”

What we have heard from English defenders this week is that the CFPB was deliberately structured to be an independent agency, insulated from Presidential power. Indeed, Barney Frank, who co-authored Dodd-Frank, insisted just this week that, “When we wrote the law creating the CFPB,… we deliberately tried to give it some protection from the normal political process.” He went further: “In this case because we knew that fighting the large financial interests on behalf of consumers was going to put you in the battlefield everyday, so we did do deliberately special protections. We gave the director of this agency a five-year term, removable by the president only for cause.”

In other words, Frank admits that Congress intended for the CFPB to operate as a completely independent agency, insulated from the political process, and that protecting the Director from firing at will was the manner in which Congress intended to achieve that independence. You want evidence of Congressional intent as to the importance to the statute of how the Director is appointed? Barney Frank is here to help. Frank’s admission should be front and center in the argument that the appointment provision of Dodd-Frank cannot be severed and that the statute should be struck down.

It’s hard to imagine what English and her defenders are thinking they’ll accomplish here. At best, she might get a few weeks as interim Director before Trump appoints a permanent Director and, in the meantime, she’s playing a dangerous game with the constitutionality of Dodd-Frank and the CFPB—which is already structurally dubious. Is it wrong that I’m rooting for her on the off-chance Dodd-Frank is struck?