Justice Department Turns against CFPB in Constitutionality Case

American Banker, March 20, 2017 | Go to article overview

Justice Department Turns against CFPB in Constitutionality Case


Byline: Kate Berry

The Justice Department told a federal appeals court on Friday that President Trump should have the authority to fire the head of the Consumer Financial Protection Bureau, but stopped short of asking for the bureau to be abolished.

As expected after the presidential election last year, the Justice Department under Attorney General Jeff Sessions sided with PHH Corp., a nonbank mortgage lender and servicer, against the CFPB over the agency's 2014 enforcement action against the firm.

In a 33-page brief, the Justice Department argued that the president should be able to remove a single agency head, which was "meaningfully different" from a multimember commission.

"Limitations on the president's authority to remove a single agency head are a recent development to which the executive branch has consistently objected," the Justice Department's brief said. "Under the Constitution and Supreme Court precedent, the general rule is that the president must have authority to remove executive branch agency heads at will."

Though a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit ruled in October that the CFPB's single-director structure was unconstitutional, the Justice Department still agreed that the proper remedy to the constitutional issue is striking language in the Dodd-Frank Act that says the director can only be removed "for cause."

If the language is removed, it would effectively allow the president to dismiss the head of the agency at will.

"In our view, the panel correctly applied severability principles and therefore properly struck down only the for-cause removal restrictions," the brief said. "Because a single agency head is unchecked by the constraints of group decision-making among members appointed by different presidents, there is a greater risk that an 'independent' agency headed by a single person will engage in extreme departures from the president's executive policy."

The case represents the first serious constitutional challenge to the bureau's structure and could ultimately be decided by the Supreme Court.

Last month, the D.C. Circuit scrapped the panel's earlier ruling and agreed to hear the CFPB's appeal on an "en banc" basis before a 10-judge panel. The CFPB had argued that a rehearing of the full D.C. Circuit was necessary to decide what it called "the most important separation of powers case in a generation." Oral arguments are set for May 24.

The case is being watched closely, in part, because Republicans have been urging President Trump to fire Cordray since inauguration day. The ongoing litigation has kept Cordray in his job for now because the case goes to the heart of whether the president has the authority to fire the head of an independent agency.

In its brief, the Justice Department urged the appeals court to look beyond the Supreme Court precedent in a 1935 case known as Humphrey's Executor, which held that the president could not fire a member of the Federal Trade Commission for political reasons. …

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