More Unconstitutional Executive Branch Actions

Imagine that your company’s board chairman, against the wishes of the board of directors and in contravention of the corporate charter, hires an interim CEO. Despite that illegal action, the interim CEO disciplines you in some manner. Would that discipline be any more legitimate if, two years later, the board finally agrees to hire the CEO, who then retroactively approved his own previous actions?

This is what’s happened at the highest levels of government. When Congress created the Consumer Financial Protection Bureau (CFPB) as part of the larger Dodd-Frank financial reform, it specified that the director was to be appointed by the president “by and with the advice and consent of the Senate.” This placed what’s called an Appointments Clause limitation on the director’s position. Four years ago, President Obama named Richard Cordray the CFPB director—after Elizabeth Warren’s expected appointment met significant political resistance—during what the president erroneously believed was a Senate recess. (You’ll recall that the Supreme Court unanimously invalidated the National Labor Relations Board appointments Obama made at the same time.)

Cordray was only confirmed as the director, in a larger compromise with the Senate, nearly two years later. In the interim, the CFPB filed an enforcement action against Chance Gordon regarding his provision of mortgage-relief services, and Cordray later ratified it. Gordon challenged the enforcement action as emanating from an unconstitutional authority, but the lower courts ruled against him, finding that the post hoc ratification resolved any Appointments Clause deficiencies. Curiously, though, the U.S. Court of Appeals for the Ninth Circuit then invited Gordon to move for rehearing en banc (normally the full court, but in that sprawling circuit, 11 judges), which request Cato is now supporting with an amicus brief.

Congress created the CFPB with the advice-and-consent requirement for a reason: the agency has vast power with virtually no accountability mechanisms, such that the Appointments Clause provision is one of the few meaningful checks on its activities. Furthermore, Congress did not authorize the CFPB to bring enforcement actions without a duly appointed, Senate-confirmed director. Advice and consent is “more than a matter of etiquette or protocol,” the Supreme Court held in Edmond v. United States (1997), it is a structural safeguard intended to curb executive power.

Also, when Dodd-Frank first gave the CFPB its sweeping authority to define unfair, deceptive, or abusive acts or practices, it specified that these enforcement powers could not be exercised before a director had been validly appointed. Cordray’s later ratification of his own actions cannot cure the original unconstitutional sin of an unsanctioned prosecution. Only Congress could authorize the CFPB’s use of its awesome powers without first having a fully confirmed boss in place—which Congress purposely did not do.

Allowing Cordray to ratify the agency’s otherwise illegal past conduct would prejudice Gordon’s rights (and those of many other similarly situated individuals and companies). In situations like these, courts should presume that harm was unquestionably present and not require litigants to demonstrate that they “received less favorable treatment than if the agency were lawfully constituted and otherwise authorized to discharge its functions.” Committee for Monetary Reform v. Board of Governors of the Federal Reserve (D.C. Cir. 1985).

The Ninth Circuit should indeed now rehear Gordon v. CFPB and reverse its earlier panel decision.