by Keith Bradley
Who do you think is the most powerful individual in government, after the president? Some might say the Secretary of Defense, the Attorney General or the Chair of the Federal Reserve Board. According to a panel of the D.C. Circuit, it is actually the director of the Consumer Financial Protection Bureau. On that ground, the court in PHH v. Consumer Financial Protection Bureau has just held it unconstitutional that, under the Dodd-Frank Act, the director can only be dismissed for cause.
For those unfamiliar with the agency, it is the federal regulator of consumer protection in financial services—things like mortgage and credit-card lending, consumer reporting, debt collection, checking accounts, etc. The Dodd-Frank Act created the Bureau, inspired in large part by then-Professor Elizabeth Warren’s idea for a finance analog to the Consumer Product Safety Commission. The Bureau has a budget of about $480 million and just over 1,500 employees—a quarter or so as big as, say, the USDA’s Agricultural Research Service. The Bureau is certainly influential in its sphere; in a six-month period it reports securing $244 million in relief for consumers harmed by violations of federal consumer financial law. Yet, whether you think the Bureau is doing a good job or a bad job in the various areas it regulates, it is not immediately evident that its director is the second-most powerful official in the entire government.
The opinion’s rhetoric reveals that this panel lost its mooring to the Constitution. The judges’ concern was that the director has “unilateral power,” by which the court really meant that the director runs the Bureau by himself, not as part of a multi-member commission or board. A commission or board is superior, the court said, because it poses less threat to individual liberty. To be sure, the Supreme Court has observed that the separation of powers protects individuals as well as the rival branches. But individual liberty is not the Constitution’s only value. To assess the validity of the Bureau, the question is not simply how it affects liberty, but how it measures up against the actual framework of the Constitution.
To see the all-consuming importance of individual liberty to this D.C. Circuit panel, it will be useful first to run through the other justifications it offered.
First, the opinion professed to be suspicious because having a single agency head with for-cause protection is novel. Setting aside whether that mode of constitutional analysis is wise, the panel’s historical review was incomplete. The National Bank Act of 1864 established the Comptroller of the Currency and it permitted (and still permits) the President to remove the Comptroller only “upon reasons to be communicated . . . to the Senate.” Textually and in terms of effect, “upon reasons” seems pretty similar to a “for cause” limitation. Assessing this historical example would be important for any careful examination of whether for-cause protection for a single agency head is a novelty. The D.C. Circuit panel dismissed it in a footnote stating that the Comptroller is an at-will official—for which the court cited no precedent and provided no explanation.
The court also framed the Bureau as having an unprecedented “broad authority over the economy.” But the Bureau’s hand does not reach so far. The largest portion of what the Bureau regulates is credit and the total of U.S. credit services—including business credit over which the Bureau has very little authority—constitutes just 2.8% of GDP. By comparison, the Federal Trade Commission oversees antitrust and the law of unfair trade practices economy-wide and the Securities Exchange Commission regulates the markets for all publicly traded securities. The Comptroller of the Currency, noted above, was asked to implement a national monetary system to stabilize an economy suffering from the uncertainty produced by a patchwork of state banking systems.
The court’s definition of “unilateral power” also stated that the director is not “checked by the [p]resident.” Because the president can remove the director only for “inefficiency, neglect of duty, or gross malfeasance in office,” the panel said, the president cannot supervise or direct him and is reduced to mere “cajoling.” That theory bucks what the Supreme Court has said on this very point. The power to remove an official for those reasons is, in fact, a “means of supervising or controlling” the official. The Court has “already concluded” that the limited removal power “provides the executive with substantial ability to ensure that the laws are ‘faithfully executed.’” In its most recent Appointments Clause, the Court—operating on the assumption that the SEC commissioners have for-cause protection—observed that the president can “hold the [SEC] to account for everything . . . it does.” Moreover, presidents can and do issue orders to independent agencies. For example, the Bureau submits a semiannual regulatory agenda to the Office of Management and Budget, as Executive Order 12,866 expressly instructs independent agencies to do.
The court also complained that “within his jurisdiction, the [d]irector of the CFPB can be considered even more powerful than the [p]resident,” because “the [d]irector’s view of consumer protection law [...] prevails over all others.” Yet the director’s view of consumer protection law didn’t even prevail in this case; besides invalidating a piece of the Dodd-Frank Act, the court also rejected the director’s interpretations on key statutory issues.
Ultimately, then, the D.C. Circuit’s rationale boils down to the fact that the director runs the Bureau by himself, without being “checked . . . by other colleagues.” This brings me to what may be the key passage in the opinion. “In the absence of [p]residential control,” the panel said, “the multi-member structure of independent agencies acts as a critical substitute check on the excesses of any individual independent agency head – a check that helps to prevent arbitrary decision making and abuse of power and thereby to protect individual liberty. But this new agency, the CFPB, lacks that critical check and structural constitutional protection. And the lack of the traditional safeguard threatens the individual liberty protected by the Constitution’s separation of powers.”
After those lines come nine pages of exposition about the merits of multi-member commissions. They are less susceptible to capture by regulated industries, groups make better decisions, etc. There is great wisdom in these pages. But they do not touch on the separation of powers between the president, Congress and the courts. Instead they reason that the Constitution’s drafters favored checks and balances as a general matter. This part of the opinion also does not rely much on Article II. The constitutional requirement, as articulated in cases like Morrison v. Olson and Free Enterprise Foundation v. Public Company Accounting Oversight Board, is that the president be able to take care that the laws are faithfully executed. If the President has insufficient control over the Bureau, it is hard to see how giving the director four colleagues, also removable only for cause, would enhance the president’s influence. If the president cannot supervise the director, checking him with a multi-member board would be an odd substitute—as far as Article II is concerned.
This, then, is why I say the PHH panel lost its mooring in the Constitution. Where the opinion offers justifications based on the Constitution’s structural requirements, they are—despite their length—somewhat hasty and incomplete. Understandably so. The panel’s assertion that a for-cause protection prevents the president from having any control or influence over the director logically implies that eight decades of Supreme Court cases, from Humphrey’s Executor to Free Enterprise Foundation, are mistaken and the Federal Trade Commission is unconstitutional. The opinion did not explore those consequences. Where the panel seemed surest on its feet was its explanation that individuals have less to fear from a multi-member commission than from a solitary agency head. And that is the part of the opinion that abandons the content of the Constitution in favor of one value—individual liberty—among the multiple values that the Constitution furthers.
Meanwhile other federal officials—the Treasury Secretary? the Chair of the Joint Chiefs of Staff? the Vice President, pace Jack Garner?—might ponder whether they should seek a promotion to what the D.C. Circuit considers a vastly more powerful position.