D.C. Circuit Upholds as Constitutional the Structure of the CFPB – Part II

D.C. Circuit Upholds as Constitutional the Structure of the CFPB – Part II

Legal Sidebari

D.C. Circuit Upholds as Constitutional the
Structure of the CFPB – Part II
February 12, 2018

As discussed in Part I of this two-part Sidebar, the en banc U.S. Court of Appeals for the District of
Columbia Circuit (D.C. Circuit) issued a decision last week upholding the structural design of the
Consumer Financial Protection Bureau (CFPB). The court ruled in PHH Corp. v. CFPB that the features
of independence granted to the agency in the Dodd Frank Act, including a provision that limits the
circumstances in which the President can remove the CFPB Director, do not violate Article II’s vestment
of executive power in the President. While Part I discusses the court’s majority opinion, this part
examines several of the separate opinions from PHH that take a different view of the constitutional issues
at stake in the case. The Sidebar then concludes with some considerations for Congress, including the
potential impact of the decision for the independence of federal agencies and the possibility of Supreme
Court review of the en banc ruling.
The lengthy PHH decision included several separate opinions that departed significantly from the
majority’s approach and could be a preview of how the Supreme Court could evaluate the underlying
constitutional issue on appeal.
Concurring Opinions
Judge Thomas B. Griffith, for example, concurred in the judgment only, hinging his ultimate conclusion
that the removal restrictions for the CFPB Director were constitutional on a different interpretation of the
removal restrictions than his colleagues. While the panel majority appeared to assume that the “for-cause”
removal restrictions for the CFPB Director did limit the President’s power to remove the Director, Judge
Griffith questioned that assumption. Specifically, he interpreted the statutory removal grounds for the
CFPB Director – for inefficiency, neglect of duty, or malfeasance in office – to impose only a “minimal
restriction on the President’s removal power,” permitting the removal of the Director even for “ineffective
policy choices.” For Judge Griffith, executive branch officers are inefficient when they “fail[]to produce
or accomplish the agency’s ends,” as interpreted by the President within the terms set by Congress.
Because the statute authorizes removal of the CFPB Director on what the concurrence viewed to be fairly
broad grounds, he reasoned that the statute does not unduly intrude on the President’s ability to execute
the law. As a practical matter, while Judge Griffith’s opinion agreed with the panel majority’s final
judgment, the logic of his reasoning seems to arrive at a result similar to that of Judge Brett Kavanaugh’s
Congressional Research Service
https://crsreports.congress.gov
LSB10074
CRS INSIGHT
Prepared for Members and
Committees of Congress

Congressional Research Service
2
dissent (discussed below). Whereas Judge Kavanaugh would have severed the removal restrictions for the
CFPB Director, allowing the President to remove the Director for any reason whatsoever, Judge Griffith
would have left the agency structure intact, but approve the President’s discretion to remove the CFPB
Director for nearly as wide a range of reasons as Judge Kavanaugh’s remedy would have allowed.
In another concurring opinion, Judge Robert L. Wilkins also concurred with the majority, but offered
another reason why he thought the CFPB’s structure was constitutional. In his view, cases like
Humphrey’s Executor teach that officials who exercise quasi-legislative or quasi-adjudicative functions
may be shielded from removal at will without violating Article II. For Judge Wilkins, adjudications must
be insulated from political pressure in order to ensure a fair hearing for private citizens to comport with
the Constitution’s due process requirements. Because the CFPB Director’s role in the proceedings below
was largely adjudicative, Judge Wilkins concluded that for-cause removal restrictions were appropriate
and did not intrude on the President’s authority under Article II. Judge Wilkins also registered his
disagreement with Judge Griffith’s conclusion that “inefficiency,” for purposes of the Director’s removal
protections, “is properly construed to allow removal for mere policy disagreements.”
Dissenting Opinions
Judge Kavanaugh wrote a dissenting opinion, reiterating his belief – expressed in his earlier panel opinion
– that the CFPB’s structure violates Article II’s vestment of executive power in the President. For Judge
Kavanaugh, Myers establishes the general rule that the President is vested with authority to remove
executive branch officers, subject only to certain exceptions established in Humphrey’s Executor and its
progeny.
Judge Kavanaugh focused on three primary factors that undergirded his conclusion that an independent
agency with a single director is unconstitutional. First, he emphasized the novelty of the CFPB’s structure
– most independent agencies are headed by multiple members, rather than a single director. In Judge
Kavanaugh’s view, this departure from historical practice indicated a potentially serious constitutional
defect. Importantly, Judge Kavanaugh’s conclusions about the novelty of the CFPB departed from the
majority’s understanding of historical practice. For the majority panel, the CFPB’s structure was hardly
unique as the Comptroller of the Currency – another financial regulator – is also headed by a single
person who is “insulated from removal.” Judge Kavanaugh, however, considered the Comptroller of the
Currency to be removable by the President at will, quite unlike the CFPB Director. The second factor
informing Judge Kavanuagh’s conclusion was that the concentration of power in a single, unaccountable
Director poses a serious threat to liberty. While other independent agency heads may have removal
protections, the dissent argued that their multi-member structure demands consensus and acts as a check
on the whims of an independent, individual agency head. Third, Judge Kavanaugh argued, removal
protections for a single-Director agency head diminishes the President’s Article II power to control the
executive branch beyond what has been judicially approved for multi-member independent agencies.
According to the dissent, in multi-member commissions with statutory removal protections, the President
usually may appoint and remove the chair of the agency, ensuring some influence over the agency’s
direction; with the CFPB, however, the President may not alter the head of the agency until the end of the
five-year term, which means, at least in some cases, a President might not ever be permitted to align the
agency with his own policy goals.
Judge Karen L. Henderson also dissented. Similar to Judge Kavanaugh, she reasoned that restrictions on
the President’s removal power are the exception, not the rule, and the CFPB’s structure did not match the
exceptions that the Supreme Court previously approved. For Judge Henderson, the CFPB is quite unlike
the FTC approved in Humphrey’s Executor: the CFPB’s funding stands outside the appropriations
process; and the agency is not headed by a non-partisan body of experts. Likewise, in contrast with Judge
Wilkins’ opinion, although certain agencies formed to adjudicate claims may have for-cause removal
restrictions, the CFPB is not primarily an adjudicatory entity and therefore cannot be afforded with
removal protections. Finally, Judge Henderson distinguished Morrison, reasoning that removal

Congressional Research Service
3
restrictions may be appropriate for government officers with fairly limited jurisdiction and power, but
Congress has bestowed immense power on the CFPB that far outstrips an Independent Counsel. While
Judge Kavanaugh’s proposed remedy for the constitutional infirmity of the Dodd-Frank Act was to sever
the provision shielding the CFPB Director from removal, Judge Henderson would have severed all of
Title X of Dodd Frank because she thought Congress would not have created the CFPB in the first place if
it did not have independence from the President.
Potential Considerations for Congress
Whether the court’s en banc decision will stand as the final outcome in the litigation is uncertain. As
noted in Part I of the Sidebar, while the en banc court reversed the earlier panel opinion’s constitutional
ruling regarding the structure of the CFPB, it reinstated that panel’s opinion with respect to its
interpretation of the Real Estate Settlement Procedures Act (RESPA) and its application to PHH. By
doing so, the en banc opinion overturned the CFPB order against PHH. In other words, PHH is the
prevailing party with respect to its challenge on statutory grounds of the CFPB’s enforcement action. It
can be difficult for prevailing parties to obtain Supreme Court review of a judgment in their favor; absent
compelling policy reasons to do so, the Court tends to preserve its resources to reviewing cases wherein a
party appeals a judgment rendered against them. Likewise, while the government is the losing party with
respect to the underlying statutory issue, it is unclear whether either the CFPB or the President seeks to
contest the court’s reading of RESPA, as the initial enforcement action occurred under the prior
administration and a different CFPB director. Complicating matters further, the Justice Department
considers the CFPB’s structure to violate the Constitution, so it may not defend that aspect of the law if
the Supreme Court were to grant certiorari.
Nonetheless, the PHH decision involves significant constitutional issues that go to the core of the
separation of powers and Congress’s authority to structure independent agencies which in and of itself
may warrant Supreme Court review. Were the Court to review the case, no matter its ruling, the
implications for the separation of powers would likely be substantial. The majority’s opinion, viewed
together with Judge Wilkins’ concurrence, might represent a functional read of Congress’s ability to
structure agencies with independence from the President, wherein Congress has the flexibility to do so as
long as the basic features of agency independence previously upheld by the Supreme Court are followed.
In contrast, Judge Henderson and Kavanaugh’s opinions apply a much more formalist approach to agency
independence; for them, the few exceptions to the President’s baseline power to remove executive branch
officers at will must be interpreted strictly. That said, Judge Griffith’s perspective adds another layer to a
long unresolved legal question – on what grounds may the President remove an agency head with
statutory for-cause removal protection? Were the Supreme Court to adopt Judge Griffith’s course, it
would preserve the statutory structure of the CFPB created by Congress, but mark a crucial development
in the efficacy of statutory features of independence that Congress has long imposed on the President.
Because of the potential import of these legal questions, stay tuned for further developments regarding the
status of independent agencies.

Author Information

Jared P. Cole
Todd Garvey
Legislative Attorney
Legislative Attorney

Congressional Research Service
4

Congressional Research Service
5

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
LSB10074 · VERSION 3 · NEW