Legal Sidebari

D.C. Circuit Upholds as Constitutional the
Structure of the CFPB—Part I
February 12, 2018
The entire U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) issued a potentially
important decision on January 31, upholding the structural design of the Consumer Financial Protection
Bureau (CFPB). The en banc court held by a vote of 7-3 that the agency’s various statutory elements of
independence, including a provision that limited the President’s authority to remove the CFPB Director,
do not infringe upon the President’s powers under Article II of the Constitution. The decision, PHH Corp.
v. CFPB, comes after a previous (but since vacated) three-judge panel decision held that providing
removal protections to the sole director of the CFPB violated the Constitution. Although the en banc court
rejected the earlier panel’s constitutional reasoning, the D.C. Circuit nonetheless reinstated the previous
decision’s statutory holding, which had invalidated the CFPB’s interpretation of the Real Estate
Settlement Procedures Act of 1974 (RESPA). The D.C. Circuit’s latest decision therefore effectively
rejected the CFPB enforcement action that gave rise to the case, but reaffirmed, and may expand, what is
likely Congress’s chief tool for ensuring agency independence: the use of “for-cause” removal
protections. This two-part Sidebar series begins with a brief summary of the Supreme Court’s views of
the President’s removal power before addressing the PHH litigation and the en banc majority opinion.
Part II of this series will address some of the separate opinions issued in the case and then highlight
certain implications for Congress.
The Removal Power
Although not explicitly provided for in the Constitution, the President’s authority to remove subordinate
executive branch officials has been viewed as central to his ability to carry out his Article II powers. The
scope of the removal power, and Congress’s authority to restrict the power through statute in order to
insulate an agency from presidential influence, has been the subject of several, seemingly conflicting
Supreme Court opinions in which the Court has sought to balance the competing interests of
independence and accountability. In the 1926 decision of Myers v. United States, the Court invalidated a
law that prohibited the President from removing certain executive officials without the consent of the
Senate. The Myers opinion adopted a strong conception of the removal power, holding that the
Constitution conferred it “exclusive[ly]” to the President. However, the Court significantly limited the
breadth of Myers in a series of subsequent opinions beginning in 1935 with Humphrey’s Executor v.
United States. In those cases, the Court held that Congress could either explicitly or implicitly limit the
President’s authority to remove members of independent agencies engaged in “quasi-judicial or quasi-
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legislative” functions by requiring that such officials may only be removed for “inefficiency, neglect of
duty, or malfeasance in office.” The use of “for-cause” removal protections to insulate an agency official
from the President’s control was again upheld in 1998 in Morrison v. Olson, but this time as applied to the
Independent Counsel, a single independent official rather than a member of an independent commission.
In addition, in addressing when Congress may utilize for-cause restrictions, the Morrison decision
appears to have moved the Court away from the “quasi-judicial or quasi-legislative” standard used in
Humphrey’s Executor and toward a standard more focused on whether the law impeded the President’s
ability to “perform his constitutional duty.” In its latest removal case from 2010, Free Enterprise Fund v.
Public Company Oversight Board, the Court gave new life to the President’s removal power by
invalidating an “unusual” scheme that had protected certain executive officials with dual-layers of for-
cause restrictions on the grounds that it “impaired” the President’s “ability to execute the laws…by
holding his subordinates accountable for their conduct….”
The PHH Litigation
Previous Sidebars have discussed the facts and background of the PHH case. In short, the case arose after
PHH, a mortgage lender subject to a CFPB enforcement action, challenged the CFPB’s enforcement
actions against the lender on both statutory and constitutional grounds. The constitutional issue focused
on several provisions of the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd Frank
Act) that established a CFPB Director with a fixed five-year term accompanied by “for-cause” removal
protections. The removal protections mirror those that were upheld in Humphrey’s Executor—namely that
the President may only remove the Director “for inefficiency, neglect of duty, or malfeasance in office.”
However, PHH argued that the CFPB design diverged from previously upheld removal protections
because, among other things, it provided for-cause protections to (1) a “sole director” of an independent
agency who (2) wields significant unilateral regulatory and enforcement powers and (3) is also protected
by other structural features of independence, such as an independent funding stream.
In the fall of 2016, a panel opinion of the D.C. Circuit written by Judge Brett Kavanaugh vacated the
CFPB order, concluding both that the CFPB’s decision was inconsistent with RESPA and that endowing
the CFPB Director with for-cause removal protections violated the separation of powers by creating an
unchecked and unaccountable executive official that was not subject to adequate supervision by the
President. With regard to the constitutional issue, the 2016 opinion distinguished Humphrey’s Executor,
arguing that unlike the removal protections at issue in that case, which concerned an independent multi-
member commission, affording those same protections to a unitary director unconstrained by fellow board
members was contrary to the principles of executive accountability that are central to presidential power.
The opinion also argued that the CFPB structure was a “gross departure from settled historical practice”
because, in Judge Kavanaugh’s view, “[u]ntil this point in U.S. history, independent agencies exercising
substantial executive authority have all been multi-member commissions or boards.” In order to remedy
the violation, the opinion invalidated the for-cause protections, thereby making the Director removable by
the President at will. That opinion, however, was vacated, when the full D.C. Circuit agreed to hear the
appeal en banc.
The en banc majority opinion adopted a different perspective than the earlier panel decision. Whereas the
panel opinion viewed the CFPB as an unconstitutional anomaly, the en banc majority viewed (1) the
agency as “neither distinctive nor novel” and (2) the removal protections provided to the Director as
consistent with existing precedent and historical practice. In assessing the validity of the CFPB’s structure
and independence, the opinion centered on two questions, asking: (1) whether the “means” of creating the
CFPB’s independence—centrally the for-cause removal protections for the CFPB Director—are
permissible; and (2) whether the agency’s “functions” are of the nature or type that Congress may employ
for-cause protections without infringing on the President’s Article II powers.
The Means of Independence

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The majority opinion found the Director’s for-cause removal protections to be “fully within the bounds of
[] precedent and history,” describing the protections as “wholly ordinary” and a “consistently approved”
means for Congress to shield the CFPB from presidential control. Indeed, the court suggested that PHH’s
argument to the contrary “flies in the face of the Supreme Court’s removal power cases.” In support of
this conclusion, the court relied on Humphrey’s and Morrison as establishing a general rule that “for-
cause” removal restrictions are a permissible tool by which Congress can provide an agency with
independence. Even Free Enterprise Fund was no departure from the Court’s general approach, the
opinion argued, because it permitted the more “standard” single layer of for-cause protections for
members of the Securities Exchange Commission (SEC) to remain in place. The en banc court noted that
it is only when Congress has attempted to reserve a role for itself in the removal of an official like in
Myers, or where the law has made it “abnormally difficult for the President to oversee an executive
officer” like in Free Enterprise Fund that the Supreme Court has invalidated a removal provision. The
CFPB provision did neither, and therefore could not, under a standard established in Morrison, be viewed
in the majority’s opinion as “imped[ing] the President’s ability to perform his constitutional duty.”
The en banc majority also viewed the distinction between providing for-cause protections to a sole agency
head, as opposed to a member of a board or commission, to be “irrelevant,” “untenable,” and with “no
footing in precedent, historical practice, constitutional principle, or the logic of presidential removal
power.” If the concern was the President’s ability to direct and supervise his subordinates in order to hold
them accountable for their execution of the law, the majority opinion reasoned that the CFPB’s single
director framework, by consolidating all power in a particular individual, actually afforded the President
“more efficient control” over the agency than he would have asserted over a multi-member board. “Now,”
the court stated, “if the President finds consumer protection enforcement to be lacking or unlawful, he
knows exactly where to turn.” Moreover, the court asserted that a conclusion that Congress may not
provide a sole agency director with for-cause removal protections would be in direct tension with
Morrison, which explicitly approved such a provision for an entity headed by one person.
The Functions of the Agency
While the court determined that ordinary for-cause removal protections are a permissible means of
providing an agency with independence, it also noted that “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.” For example, the court noted that “nobody would suggest” that
Congress could impose for-cause removal protections upon cabinet officials such as the Secretary of State
or Secretary of Defense. Therefore, the court had to consider whether the CFPB performed the type of
executive functions that could be insulated from presidential control without impermissibly infringing on
the President’s ability to supervise subordinate officials and oversee the faithful execution of the laws.
Viewing the CFPB’s functions as mainly focused on financial regulation, the court determined that the
agency could be categorized as part of a long line of financial regulatory agencies that enjoyed the benefit
of limitations on political influence and which the court viewed as “exemplars of appropriate and
necessary independence,” such as the FTC, the Federal Reserve Board, the Federal Deposit Insurance
Corporation, the Federal Housing Finance Authority, the Office of Comptroller of the Currency, and the
SEC. The opinion noted that the independence of financial regulators “is so well established by tradition
and precedent that courts have assumed these agencies’ heads have removal protections even in the
absence of clear statutory text so directing.” As a result, the en banc majority concluded that “like other
independent federal financial regulators designed to protect the public interest . . . the CFPB is without
constitutional defect.”
Additional concurring and dissenting opinions in PHH, as well as some considerations for Congress, will
be discussed in Part II of this Sidebar.

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Author Information

Todd Garvey
Jared P. Cole
Legislative Attorney
Legislative Attorney





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