WASHINGTON, DC – Lawsuits challenging the constitutionality of parts of the Consumer Financial Protection Bureau (CFPB) are likely going to the Supreme Court late this year, as the left-leaning majority of a D.C.-based federal appeals court sided with the powerful agency on January 31 in a divided decision that received little public attention.
The Dodd-Frank Act was enacted in 2010 when Democrats had large majorities in the House and Senate, and President Barack Obama was in the White House. Title X of this far-reaching statute created the CFPB, headed by a director who is appointed by the president with Senate approval, and serves a five-year term.
Several legal challenges have been filed against parts of Dodd-Frank, including cases arguing that parts of the CFPB are unconstitutional. For example, some argue that the CFPB’s drawing its funding from banking fees instead of Congress’s annual spending bills violates the Constitution’s Appropriations Clause.
Another common attack is that Dodd-Frank’s provision that the CFPB director can only be removed by the president for “inefficiency, neglect of duty, or malfeasance” violates the president’s Article II power to appoint and remove subordinate government officers who exercise power in his administration.
One such challenge went to a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit. When a conservative-leaning panel of the liberal D.C. Circuit agreed with the challengers and struck down the for-cause removal restriction, the full court agreed to rehear the case in a rare en banc sitting with all the court’s judges participating.
In a fractured decision, the en banc court held that the Constitution allows shielding the CFPB director from presidential removal. Ten judges on the appeals court ruled in favor of CFPB by a 7-3 vote, but split between seven separate opinions totaling a whopping 250 pages.
The Supreme Court held in its 1926 case Myers v. United States that the president’s power to appoint federal officers to help him exercise his power necessarily includes the power to remove those officers so that he can appoint new ones who will serve him better.
In 1935 as part of its swing to the left, the Supreme Court held in Humphrey’s Executor that Congress could restrict the president’s power to remove commissioners from “independent” commissions that had power to make regulations or act like judges to decide disputes.
Former U.S. Solicitor General Ted Olson argued for the challengers that Humphrey’s Executor applies only to multi-member bodies, and not to someone who was the sole leader of an agency. If so, the general rule from Myers should control this case.
“It is beyond question that there are some purely executive officials who must be removable by the President at will if he is to be able to accomplish his constitutional role,” Judge Cornelia Pillard wrote for the D.C. Circuit majority.
But the Obama-appointed Pillard also wrote that the court rejected Olson’s argument, holding that his argument “finds no footing in precedent, historical practice, constitutional principle, or the logic of the presidential removal power.”
Judge Brett Kavanaugh dissented, joined by Senior Judge Ray Randolph, beginning, “This is a case about executive power and individual liberty.”
To prevent tyranny and protect individual liberty, the Framers of the Constitution separated the legislative, executive, and judicial powers of the new national government. To further safeguard liberty, the Framers insisted upon accountability for the exercise of executive power. The Framers lodged full responsibility for the executive power in a President of the United States of America, who is elected by and accountable to the people. The first 15 words of Article II speak with unmistakable clarity about who controls the executive power: “The executive Power shall be vested in a President of the United States of America.” And Article II assigns the President alone the authority and responsibility to “take Care that the Laws be faithfully executed.” The purpose of the separation and equilibration of powers in general, and of the unitary Executive in particular, was not merely to assure effective government but to preserve individual freedom.
“Of course, the President executes the laws with the assistance of subordinate executive officers who are appointed by the President, often with the advice and consent of the Senate,” Kavanaugh continued. “To carry out the executive power and be accountable for the exercise of that power, the President must be able to supervise and direct those subordinate officers.”
“The Director of the CFPB wields enormous power over American businesses, American consumers, and the overall U.S. economy,” he reasoned. “The Director unilaterally implements and enforces 19 federal consumer protection statutes, covering everything from home finance to student loans to credit cards to banking processes.”
Kavanaugh noted that “the Director of the CFPB possesses more unilateral authority—that is, authority to take action on one’s own, subject to no check—than any single commissioner or board member in any other independent agency in the U.S. government.”
“Indeed, other than the President, the Director enjoys more unilateral authority than any other official in any of the three branches of the U.S. Government,” he added, in an observation certain to get the Supreme Court’s attention when the challengers inevitably ask the justices to review this case.
Judge Karen LeCraft Henderson dissented separately, writing that, “the consent of the governed is a sham if an administrative agency, by design, does not meaningfully answer for its policies to either of the elected branches.”
“As a guarantor of self-government, Article II has always been one of the Constitution’s best provisions,” Henderson continued. “But it suffers a major defeat today and will suffer more if today’s decision stands.”
“In my view, the CFPB violates Article II and should be invalidated top to bottom,” she concluded, saying that Dodd-Frank’s director-removal provision could not be severed from the rest of the Dodd-Frank’s Title X, and thus that the entire CFPB is unconstitutional and must be abolished.
Judge Randolph wrote his own dissent in addition to joining Kavanaugh’s, noting that an aspect of this case is already being reviewed by the Supreme Court in Lucia v. SEC, determining whether the way the Securities and Exchange Commission appoints its administrative law judges is unconstitutional.
Randolph argued that if the D.C. Circuit was not willing to strike down the relevant provision of Dodd-Frank immediately, then at minimum his court should not vote to uphold the challenged provision in this case before the Supreme Court decides the Lucia case.
The losing side in this case has until April to petition the Supreme Court to review the matter. In the likely event that the High Court grants review, arguments will be held in late 2018, with a decision likely in early 2019.
The case is PHH Corp. v. Consumer Financial Protection Bureau, No. 15-1177 at the U.S. Court of Appeals for the District of Columbia Circuit.
Ken Klukowski is senior legal editor for Breitbart News. Follow him on Twitter @kenklukowski.