CFPB and the Fifth Circuit Agree that Independent Agency Directors Should be Removable at Will

3 min

A recent decision from the United States Court of Appeals for the Fifth Circuit and statements by the Director of the Consumer Financial Protection Bureau (CFPB) may prompt the Supreme Court to consider the constitutionality of the CFPB's single director structure.

Sitting en banc, the Fifth Circuit ruled earlier this month that the directorship structure of the Federal Housing Finance Agency (FHFA) is unconstitutional. The FHFA—an independent agency created under the Housing and Economic Recovery Act of 2008 (HERA)—serves as regulator and conservator of government sponsored enterprises such as Fannie Mae and Freddie Mac. Like the CFPB, the FHFA's sole director is only removable by the President "for cause." In Collins v. Mnuchin, the Fifth Circuit ruled that this "for cause" language should be struck from HERA, deeming it an unconstitutional limitation on the President's removal power under Article II. Notably, however, the Court of Appeals found only that severing the provision would be warranted, and did not rule that invalidating the FHFA outright was an appropriate remedy.

An analog provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act") established a similar, but not entirely identical, removal procedure for the CFPB's sole directorship. Among other things, the Dodd-Frank Act defines removal "for cause" to mean removal "for inefficiency, neglect of duty, or malfeasance in office."

Both the D.C. Circuit in PHH Corp. v. CFPB and the Ninth Circuit in Seila Law LLC v. CFPB recently ruled that Dodd-Frank Act's "for cause" limitation on the President's removal power over the CFPB director is constitutional. Accordingly, notwithstanding the differences between HERA and the Dodd-Frank Act, the Fifth Circuit's decision in Collins may constitute a circuit split sufficient to prompt the Supreme Court to take up the issue for the CFPB.

The current Administration may be banking on this same logic. Indeed, the Collins decision coincides with the CFPB's recent formalization of its position that the Dodd-Frank Act removal provision is unconstitutional. Just days after Collins was released, the CFPB (through the Department of Justice) filed a brief encouraging the Supreme Court to take up the Seila Law case on petition for writ of certiorari, despite the agency's procedural posture as respondent. The briefing has been distributed for conference on October 11, 2019.

CFPB Director Kraninger followed up on its filing through the DOJ by submitting letters to Senate Majority Leader McConnell and House Speaker Pelosi, in which Kraninger notes that the CFPB would adopt the Department of Justice's view that the Dodd-Frank Act for-cause removal is unconstitutional. Further, Director Kraninger notes that she has "directed the Bureau's attorneys to refrain from defending" the for-cause removal provision in other cases.

It has generally been surmised that a Supreme Court "fix" to this claimed a constitutional defect in the CFPB's structure related to the for-cause removal provision would be to strike the for-cause provision from the statute, effectively making the CFPB Director removable at will by the President. The Fifth Circuit proposed such a solution in the context of the FHFA and HERA. When sitting as a judge on the United States Court of Appeals for the District of Columbia Circuit, Judge Kavanaugh (now Associate Supreme Court Justice Kavanaugh) proposed the same fix when he ruled that the for-cause language in the Dodd-Frank Act unconstitutional, but did not find the entire Act unconstitutional in PHH v. CFPB. Should the Supreme Court take this issue for review, it may provide an opportunity to see whether Justice Kavanaugh's colleagues adhere to his unitary executive constitutional law theory that believes the President possesses the power to control the entire Executive Branch, including all administrative agencies. We will continue to keep an eye on developments.