The Consumer Financial Protection Bureau (CFPB) was created in 2010 by the Dodd-Frank Act to help reform Wall Street practices. But last week the D.C. Circuit Court of Appeals ruled that the CFPB was unconstitutional.
The case provides a new episode for a long-running series we might (if we wanted to have the worst Netflix show ever) call “The Constitutional Politics of Bureaucratic Structure.” The basic plot conflict: Who gets to fire federal officials? The court’s answer: the president.
The story starts, as usual, with the Constitution. Article II begins by declaring that “the executive power shall be vested in a president …” The “executive power” is undefined, but most agree it must include power over personnel. James Wilson told the Constitutional Convention “the only powers he conceived strictly Executive were those of executing the laws, and appointing officers …”
Now, to appoint these officers requires Senate confirmation. But what about removals? Alexander Hamilton originally thought Senate permission would be needed there, too. But the very first Congress decided otherwise and gave the president sole control over firing department heads. James Madison argued this would ensure that “those who are employed in the execution of the law will be in their proper situation” — dependent on the president, and thus ultimately on the voters.
But after the Civil War, Congress — which hated President Andrew Johnson — changed its mind. The Tenure of Office Act required Senate approval if the president wanted to dismiss a Cabinet officer. When Johnson fired the secretary of war anyway, he probably expected a court case. Instead, the House impeached him (though, ironically, the Senate did not consent to firing him.)
It took until 1926 for the Supreme Court to weigh in. Myers v. U.S. presented the case of a postmaster fired by Woodrow Wilson despite a law that gave him a fixed term. Former president William Howard Taft, now chief justice of the United States, wrote a sweeping opinion that held that the law was “quite out of keeping with the plan of government devised by the framers of the Constitution.” Since the president’s “selection of administrative officers is essential to the execution of the laws by him, so must be his power of removing those for whom he cannot continue to be responsible.” That power must in fact be “unrestricted.”
Story over? No. Just nine years later, the court allowed a commission-size restriction. When Franklin Roosevelt took office, he pressured William Humphrey, a Hoover appointee to the Federal Trade Commission, to resign. But the FTC was among the independent agencies led by fixed term, multi-member, sometimes bipartisan boards whose commissioners the president could not remove except for cause (e.g., “neglect of duty.”) Humphrey refused to go. FDR fired him.
The government argued that, under Myers, Humphrey’s termination was perfectly legal. But in Humphrey’s Executor a unanimous court ruled against FDR: The removal power was not “illimitable” but depended on “the character of the office.” The point of regulatory commissions was to allow decision-making by independent experts. The FTC and its cousins were only sort of executive agencies, the court said, since their power involved “quasi-legislative or quasi-judicial functions.” Thus it was fine for Congress to insulate them from political control.
Humphrey’s infuriates those who believe in a “unitary” executive branch under the president’s complete control. After all, if you have exactly three branches of government, how can an agency not belong in any of them? One prominent “unitarian,” the late Antonin Scalia, famously argued that Article II’s vesting clause “does not mean some of the executive power, but all of the executive power.”
That came in the 1988 Morrison v. Olson case contesting the Independent Counsel Act. (After Watergate’s “Saturday Night Massacre,” Congress wanted to ensure that a president could not fire the lawyers investigating him.)
Scalia was the only dissent to a ruling solidly upholding the ICA. But in the CFPB case he’s back in the majority. Judge Brett Kavanaugh worries that “independent agencies pose a significant threat to individual liberty and to the constitutional system” while the president “provides accountability and protects against arbitrary decisionmaking” by those agencies. The opinion quotes Scalia’s Morrison dissent seven times, claiming there is “nearly universal consensus” that it was correct all along. (This is generous — the 1999 expiration of the ICA had less to do with its constitutionality than with Scalia’s prescient prediction of its deployment as a political weapon.)
PHH Corporation v. CFPB is thus an intriguing sequel to our narrative. PHH, a mortgage lender, was fined $109 million by CFPB. It argued in turn that the CFPB couldn’t constitutionally exist. Why? To shield financial regulations from partisan interference, Dodd-Frank gave control of CFPB to a single director, serving a fixed five-year term, and removable only for cause. The Bureau also gets its money straight from the Federal Reserve system rather than from annual congressional appropriations.
That CFPB is well-buffered is good for independent action and technocratic expertise. It’s less good for accountability to or oversight by elected officials.
Hence the repeated invocation of threats to “individual liberty.”
And hence the court’s decision that the bureau’s structure is constitutionally impermissible.
The ruling holds that regulatory agencies must be part of the system of checks and balances, not shielded from it. In historical practice, this has meant one of two paths. First is Myers: The director serves at the pleasure of the president. Second is via Humphrey’s Executor, which, for the court, means a board of commissioners instead of a single director: If we can’t have direct presidential control, then at least “multi-member bodies … do better than single-member bodies in avoiding arbitrary decisionmaking and abuses of power, and thereby protecting individual liberty.”
But here we can have direct presidential control. As the court concludes, if the for-cause removal provision is excised, “the President … now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.” The decision does not close CFPB or invalidate its decisions. But it pulls the bureau out of the realm of independent agencies and into Myers’ executive branch hierarchy — albeit still safe from the legislative budget process.
The case will almost certainly be appealed. Stay tuned for more episodes! But in the meantime, it breathes new life into the spirit of the unitary executive. In so doing, it strengthens President Obama’s hold on the agency — and, more meaningfully, his successor’s.