The Road to Cordray’s Removal Just Got Longer

The plot thickens in the ongoing battle for the Consumer Financial Protection Bureau, the controversial agency created in the wake of the 2008 financial crisis.  Yesterday, a federal appeals court decided it would grant rehearing of last year’s case, PHH v. CFPB, which held the agency’s structure to be unconstitutional.  The decision issued last year not only ruled the agency’s structure to be unconstitutional, but also placed the director under the president’s authority, giving the president the power to fire the director at will.  Now that the court will rehear the case, its earlier decision is no longer binding, meaning the president can no longer rely on it if he wishes fire Director Richard Cordray.

The bureau is the brain-child of Massachusetts Senator Elizabeth Warren, but even the progressive firebrand did not dream up an agency as powerful as the one that congress ultimately created.  Senator Warren, then a private citizen, initially proposed a commission structure.  While independent commissions, such as the Securities and Exchange Commission (SEC), are constitutionally questionable (they are not directly accountable to the President or Congress, and are therefore outside the three branches of government established by the Constitution), they have the benefit of both precedent and a measure of checks and balances.  As Judge Kavanaugh noted in the initial PHH v. CFPB decision, a structure like the SEC’s allows the commissioners to serve as checks on each other.  The SEC is by law bi-partisan, with no more than three of the five seats filled by members of the same party, and there is pressure for the chair to get consensus from all five commissioners or risk a reputation for divisiveness and partisanship.  Other regulators, like the Commodity Futures Trading Commission and the Federal Trade Commission, have similar structures.

The CFPB, however, was ultimately structured as a bureau headed by a single director, who is removable only for cause.  As I have discussed previously, the problem is not only that this structure is unconstitutional (which is no small problem), or that its mandate to pursue “abuse” practices is frighteningly vague, but that the current director, Richard Cordray, has embraced his power with gusto, expanding the agency’s authority as far as possible (and even further). 

The fall out from the initial PHH v. CFPB decision and the strange intricacies of the Dodd-Frank Act have provided terrific fodder for legal intellectuals everywhere.  The unusual structure of the CFPB coupled with the current president’s unconventional style have taken us to a new frontier, legally speaking. For example, one scholar has argued that the president does not need the court’s permission to dismiss Cordray for cause; because each branch of the government has the obligation to uphold the Constitution, the president arguably could determine on his own that the structure is unconstitutional and that he therefore does not need the judiciary’s permission to remove the current director.  There are also reasons to believe that the president has sufficient support to remove the director for cause (which he has always had the power to do).  Either of these actions would be an extremely bold move by the president, without historical precedent.  And this is where President Trump’s temperament and style come into play; this is not a president terribly concerned with whether he is being too bold.

If the appellate court rules that the CFPB is constitutional, it is likely that PHH will seek to appeal that decision to the Supreme Court (and it is reasonable to think the Court would take the case).  If it rules that it is unconstitutional, typically the agency would be expected to seek appeal itself.  But Dodd-Frank allows the CFPB to pursue litigation in the Supreme Court only with the permission of the attorney general – a presidential appointee.  This raises the question: does Attorney General Sessions give permission?  If not, what happens? 

It is also possible that the appellate court won’t rule on the constitutional question at all.  In the original case, decided by a panel of three judges, one judge declined to rule on the constitutionality of the agency, instead finding that the agency’s actions were improper and that that finding meant there was no need to consider the constitutional question.  The court rehearing the case may make a similar determination, leaving the constitutionality of the agency still an open question for the judiciary.

It is not at all surprising that the D.C. Circuit Court opted to rehear this case.  The case presents important questions of constitutional law.  It does mean that this already long story will only get longer, and more complex.  Even if the court decides not to rule on the constitutional question, it is likely that this open issue will draw other litigants.  I expect a long battle.  Unless, of course, congress takes action first.