Corporate Accountability

CFPB seen as likely to win constitutional case

By Kate Berry

A federal appeals court appears to be leaning toward a ruling in favor of the Consumer Financial Protection Bureau, with several judges arguing that a single director is more accountable to the president than a multimember commission, according to lawyers familiar with the case.

While justices questioned both sides in oral arguments Wednesday during a review by an 11-judge panel in the PHH v. CFPB case, observers said the questions tilted toward supporting the CFPB.

“While there was no conclusion that was apparent, they seemed to lean toward the CFPB’s favor,” said R. Colgate Selden, a partner in Alston & Bird’s financial services and products group. “There is a long history of having different structures based on different functions, and that’s a foundational thing that is going to stand.”

Those backing the CFPB were similarly optimistic.

“It seems like a majority of the court is likely to rule that the CFPB is constitutional,” said Brianne Gorod, chief counsel at the Constitutional Accountability Center, which filed an amicus brief in support of the bureau.

At issue is whether the CFPB’s single-director structure inhibits the president’s authority and is counter to the Constitution’s establishment of checks and balances. An earlier court ruling struck down language in the Dodd-Frank Act that said the CFPB director could only be removed “for cause,” concluding the president could fire him or her at will.

During oral arguments, the judges appeared concerned that ruling against the CFPB could have implications for other independent agencies, even ones with a board structure like the Federal Reserve Board. Several justices also referenced a 1935 Supreme Court decision, Humphrey’s Executor v. U.S., in which the high court said the president could not remove a member of the Federal Trade Commission at will. They also pointed to a 1988 case that upheld the constitutionality of the U.S. Office of Independent Counsel.

Taken together, several justices appeared reluctant to rule against the CFPB, lawyers said.

“Each case defines the limits of chipping away at the president’s power, and the appeals court feels like they are stuck with the precedent of these cases and they are struggling to find the key differences with the CFPB,” said Vaishali Rao, a partner at Hinshaw & Culbertson. “I think the CFPB won.”

Moreover, despite partisan tensions, even some Republican justices appeared unwilling to go against the CFPB. The court’s composition favors the bureau, with six justices appointed by Democrats, five by Republicans, and one abstention. But two judges appointed by Republicans seemed to favor upholding the CFPB’s constitutionality, arguing in part that the court is boxed in by three past Supreme Court rulings, lawyers said.

“How is the president’s power any further diminished in this case than in Humphrey’s Executor?” asked Judge Thomas Griffith, a George W. Bush appointee. “It is the same removal.”

Griffith was less concerned that power was concentrated in the CFPB and more focused on how that power infringes on the president’s authority.

To be sure, some justices appeared to be leaning the other way. Judge Brett Kavanaugh, who was appointed by President George W. Bush, and who previously ruled against the CFPB last October as part of a three-judge panel, said Congress did not think through the ramifications of the bureau’s structure.

Cordray’s five-year term ends in July 2018, setting up the current showdown with President Trump. But a Trump appointee could end up a thorn in the side of the next Democratic president, Kavanaugh noted.

“Whose ox is going to get gored, that’s going to shift,” Kavanaugh said. “Does that matter, the dead hand of the past president in controlling the agency?”

He pushed the issue even further.

“Could Congress pass a statute saying the majority of the members of an independent agency must be of the opposite party of the president?” he asked. “That’s de facto what’s happened here.”

Many analysts expect the D.C. Circuit could rule on the case by yearend or early next year. As a result, Cordray will likely remain in office unless Trump attempts to remove him “for cause,” which is defined as “inefficiency, neglect of duty, or malfeasance.”

Cordray also may resign ahead of a February 2018 deadline for the Ohio gubernatorial race, as many Republicans and bankers expect.

During oral arguments, the justices devoted a fair amount of discussion to differences between the CFPB and agencies led by multimember commissions and the political impact.

Judge Thomas Griffith, a George W. Bush appointee, rattled off the names of five agencies whose heads all resigned after Trump took office: the Federal Trade Commission, the Federal Communications Commission, the Securities and Exchange Commission, the National Labor Relations Board and the Federal Energy Regulatory Commission.

“We have a real-time example — the FTC, FCC, SEC, NLRB, FERC — all within a week of inauguration, the chair was redesignated but that can’t happen here” with the CFPB, Griffith said. “That’s different from how all the other agencies operate because they all have multiple members with staggered terms as well as the president’s ability to designate a chair.”

But several judges argued that the president actually has more authority in appointing the single director of an agency than a multimember commission.

“The diffusion of power diffuses accountability so having one person is more accountable than having three or five,” said Judge Patricia A. Millett, an Obama appointee. “So this director is more accountable than, say, the Federal Reserve Board or a number of other regulatory agencies.”

Lawrence DeMille-Wagman, the lawyer representing the CFPB, also singled out the Fed, noting that the seven members of the Fed’s Board of Governors serve staggered 14-year terms.

“The president is never guaranteed an opportunity to appoint a controlling majority of Federal Reserve,” he said.

Yet the president has an 80% chance of replacing the CFPB’s director, but just a 58% chance of replacing a member of the FTC, DeMille-Wagman said.

Millett argued that there is a reason why financial regulatory agencies have “for cause” removal.

“There’s a pattern in the financial regulatory agencies of actually wanting to have some amount of separation,” she said. “It is consistent to have those people removable for inefficiency, malfeasance or neglect of duty but not have them removable because the president disagrees as a policy matter. It’s trying to avoid cronyism. And you’re saying that that’s out of bounds.”

Several judges questioned DeMille-Wagman about whether the CFPB’s structural features — including its shield from federal appropriations, restrictions on communicating with the president, staggered term and for cause removal provision — combined to create a bigger threat to the president.

“If you look at each of those other restrictions, none of them restricts the president whatsoever,” he said. “Each of those things analyzed separately is a zero with respect to the for cause-removal argument. So when you add them all together you are adding zero + zero + zero + zero, and at the end of the day, when you add all those zero’s together, you’re still there with zero.”

Brian Marshall, policy counsel at Americans for Financial Reform, said that overall the judges did not seem to be looking for a remedy such as striking the “for cause” provision.

“It looked like there is a majority of the court who sounded very willing to accept the CFPB’s current restructure and retain its independence,” he said.

More from Corporate Accountability

Corporate Accountability
October 4, 2024

An Oil Giant Railroads Its SCOTUS Connection To Gut Environmental Law

The Lever
A fossil fuel giant with deep ties to Supreme Court Justice Neil Gorsuch, along with...
Corporate Accountability
July 2, 2024

QUICK TAKE: Corporate Interests at the Supreme Court, 2023-2024 Term

Conservative supermajority discards precedent, shifts power to judges, and hobbles agency efforts to enforce the...
By: Brian R. Frazelle
Corporate Accountability
June 24, 2024

The Supreme Court’s War on Working People Just Got a Little Worse

Balls and Strikes
The decision in Starbucks Corporation v. McKinney is part of a long tradition of the Supreme Court...
Corporate Accountability
U.S. Court of Appeals for the Fifth Circuit

Intuit, Inc. v. Federal Trade Commission

In Intuit Inc v. Federal Trade Commission, the United States Court of Appeals for the Fifth Circuit is considering whether the FTC’s authority to issue cease-and-desist orders against false and misleading advertising is constitutional.
Corporate Accountability
June 20, 2024

RELEASE: In narrow ruling, Supreme Court rejects baseless effort to shield corporate-derived income from taxation

WASHINGTON, DC – Following this morning’s decision at the Supreme Court in Moore v. United...
By: Brian R. Frazelle
Corporate Accountability
June 13, 2024

RELEASE: Supreme Court’s Disappointing Decision in Starbucks Union Case Fails to Account for History

WASHINGTON, DC – Following today’s decision at the Supreme Court in Starbucks Corp. v. McKinney,...
By: Smita Ghosh