Corporate Accountability

PHH Corporation, et al. v. Consumer Financial Protection Bureau

PHH Corporation, et al. v. Consumer Financial Protection Bureau involved a challenge to the leadership structure of the Consumer Financial Protection Bureau (“CFPB”), an agency created by the 2010 Dodd-Frank Act to end the longstanding fragmentation of responsibility for consumer financial protection that contributed greatly to the 2008 financial crisis.

Case Summary

After months of evaluating the roots of what is now known as the Great Recession and assessing the types of reforms needed, lawmakers concluded that a major culprit was the failure of a fragmented and unaccountable consumer financial protection regime to safeguard homeowners from reckless financial products. To remedy this, Congress established a new and consolidated entity, the CFPB, that would have the independence and mission focus needed to prevent a recurrence of those problems and respond to the challenges of an evolving financial marketplace. Congress structured the Bureau to be led by a single director, rather than a multimember commission, to avoid the delay and inaction to which commissions are susceptible. And to insulate the Bureau from political interference and industry pressure, Congress provided that this director may be removed for good cause—“inefficiency, neglect of duty, or malfeasance in office”—but not for policy disagreements alone.

The United States Court of Appeals for the D.C. Circuit held, in a 2-1 decision, that the CFPB’s leadership structure is unconstitutional, declaring that the director must be removable “at will” by the President. The CFPB then filed a petition asking the full Court of Appeals to rehear the case en banc.  CAC filed an amici curiae brief in support of the CFPB’s petition for rehearing on behalf of current and former members of Congress who were sponsors of the Dodd-Frank legislation. Our brief argued that en banc review was warranted because the panel restructured a government agency in a way that directly conflicted with Congress’s legislative plan. It also argued that review was appropriate because the panel’s opinion was at odds with the text and history of the Constitution, as well as with longstanding Supreme Court precedent. The D.C. Circuit granted the CFPB’s petition for rehearing en banc, vacating the panel judgment.

While the D.C. Circuit was considering whether to rehear the case en banc, it became clear that the new presidential administration was planning to withdraw support for the CFPB’s position and might force the Bureau to stop defending its own constitutionality—a development that could have prevented any review of the panel’s decision. CAC filed a motion for leave to intervene on behalf of Senator Sherrod Brown and Representative Maxine Waters, Ranking Members of the Senate Banking Committee and House Financial Services Committee, respectively. Our motion argued that Sen. Brown and Rep. Waters should be permitted to intervene given that their interest in a defense of the Bureau’s constitutionality would not be adequately represented by the new administration. This motion and a subsequent motion for en banc reconsideration were denied, as were the motions and subsequent en banc reconsideration motions of other putative intervenors. However, the new administration did not prevent the CFPB from defending itself before the en banc D.C. Circuit, and CAC continued to support the Bureau by filing an amicus brief before the en banc court on behalf of current and former members of Congress.

This brief made three principal points.  First, our brief argued that the Constitution gives Congress broad power to shape the structure of federal agencies and to give their leaders a degree of independence from presidential control. As we explained, the Framers deliberately provided such flexibility to Congress so that future lawmakers could respond effectively to new and unforeseen national crises. Second, it described how Congress exercised this discretion after the devastating financial crisis of 2008, making a considered decision that an independent Bureau led by a single director could best combat the types of consumer financial abuses that caused the near-collapse of the American economy. Third, and finally, our brief argued that Congress had every right to make this choice: the Supreme Court has long recognized that the heads of regulatory agencies may be shielded from removal at will, and the CFPB is materially indistinguishable from the agencies addressed in the Court’s prior decisions. Thus, the Bureau’s leadership structure is constitutional.

The D.C. Circuit Court of Appeals rejected PHH’s challenge to the constitutionality of the CFPB’s structure, as we had urged in our amicus brief on behalf of current and former members of Congress. In an opinion that echoed our brief, the Court explained that Congress made the considered decision that independence was critical to the CFPB’s ability to effectively fulfill its mission to protect American consumers, and that Congress was well within its constitutional authority when it accordingly decided to place a single Director removable only for cause at the CFPB’s helm.  As the court put it, “Congress’s decision to provide the CFPB Director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will.  We have no warrant here to invalidate such a time-tested course. No relevant consideration gives us reason to doubt the constitutionality of the independent CFPB’s single-member structure.  Congress made constitutionally permissible institutional design choices for the CFPB with which courts should hesitate to interfere.”

Case Timeline

  • October 11, 2016

    D.C. Cir. three-judge panel rules CFPB leadership structure unconstitutional

  • November 18, 2016

    CFPB files petition for rehearing en banc

  • November 30, 2016

    CAC files amicus brief in support of petition for rehearing en banc

    D.C. Cir. amicus brief in support of rehearing en banc
  • January 26, 2017

    CAC files motion to intervene on behalf of Senator Sherrod Brown and Representative Maxine Waters

    D.C. Cir. Intervention Motion
  • February 2, 2017

    D.C. Cir. denies CAC’s motion for leave to intervene

  • February 12, 2017

    CAC petitions for en banc reconsideration of Sen. Brown and Rep. Waters’ motion to intervene

    D.C. Cir. Reconsideration Intervention Motion
  • February 16, 2017

    D.C. Cir. grants CFPB’s petition for rehearing en banc

  • March 31, 2017

    CAC files amicus brief on behalf of members of Congress before en banc court

    D.C. Cir. En Banc Amicus Brief
  • May 24, 2017

    D.C. Cir. hears oral argument en banc

    Oral argument can be heard here.

  • January 31, 2018

    D.C. Circuit Court of Appeals rejects PHH’s challenge to the constitutionality of the CFPB’s structure

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