I have been vigorously recommending that President-elect Trump replace Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB). I still think that replacing Director Cordray is necessary for reasons I’ve enumerated elsewhere; but on Friday the CFPB filed a petitionfor a rehearing of a recent and crucial case. So it’s time to talk about the legal hurdles President Trump will have to clear before he can install a new director. It is possible that there will be a long road ahead.
To understand these hurdles, we have to go back to the CFPB’s founding document, the Dodd-Frank Act. In Dodd-Frank, the Bureau was established as an independent agency. That means that although the President appoints the Director, and although that appointment must be confirmed by the Senate, the President’s ability to remove the director is very limited. Under Dodd-Frank, President Trump would be able to remove Director Cordray only for cause — e.g., for neglecting his duty or actual bad behavior. He would not be able to remove him because the two disagreed on policy or the direction the agency should take.
The rules for an independent agency can be contrasted with those for an executive agency, such as the Department of Justice or the Department of the Treasury. The Attorney General, for example, can be removed by the President at will. And there have been examples in the past when a cabinet member has resigned over policy disagreements with the sitting President.
The CFPB is not the only independent government agency. But it is unusual in that it is headed by a single individual. The Securities and Exchange Commission (SEC), for example, is an independent agency. Its Commissioners can be removed by the President only for cause. The Chair of that agency, however, serves as Chair at the President’s will. If President Obama wanted to remove the current Chair Mary Jo White, he could remove her from her position as Chair but could not prevent her continuing as a member of the Commission for the duration of her term.
All of this changed, however, last month when a federal appeals court ruled the CFPB’s structure unconstitutional. In that case, the court found that, unlike a multi-seat commission where commissioners must work together, there is no check on the Director’s power. The court ruled that, to cure the constitutional defect, the Director must serve at the will of the President. That is, the court said that the President can fire the Director for any reason at all, including a disagreement on policy.