WASHINGTON -- The Consumer Financial Protection Bureau regained a measure of independence when a U.S. appeals court said the president’s power to remove the agency’s head is limited to specific reasons such as neglect of duty or malfeasance in office.
The Washington-based appeals court concluded Wednesday that Congress meant to protect the agency from the ebb and flow of politics. Giving the president more latitude to fire the director “would put the historically established independence of financial regulators and numerous other independent agencies at risk,” U.S. Circuit Judge Nina Pillard wrote for the majority.
The split ruling comes too late for the intended target of the legal challenge, Democrat Richard Cordray, who resigned from the CFPB in November to run for governor of Ohio.
Wednesday’s decision will likely be appealed to the U.S. Supreme Court by both the Trump administration and PHH Corp., the New Jersey mortgage company that sued to dismantle the CFPB in 2015 after being hit with $109 million in fines for violating federal real estate transaction rules.
While the fines were thrown out by a three-judge panel in October 2016, that set of judges stopped short of ordering the agency’s dissolution, but said the president could fire the director for any reason. That prompted the CFPB to seek a rehearing before the full court.
The CFPB was created under the 2010 Dodd-Frank Wall Street reform legislation with the intent to protect ordinary consumers from predatory practices of banks, mortgage and credit card companies.
Financial regulators are models of appropriate and necessary independence, the panel’s majority said Wednesday.
"Congress’s decision to provide the CFPB Director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will," Pillard wrote. "We have no warrant here to invalidate such a time-tested course."
Helgi Walker, PHH’s lawyer, said she and her colleague Theodore Olson were still examining the 250-pages of opinion and analysis and couldn’t immediately comment. The CFPB and Justice Department press offices didn’t immediately reply to emailed requests for comment.
Creation of the CFPB was championed by U.S. Senator Elizabeth Warren. Cordray, a Democrat and former Ohio Attorney General, was later appointed to lead it for a five-year term that would have expired in July.
His resignation sparked a fight over who would serve as acting director until a permanent replacement is nominated by President Donald Trump and then confirmed by the Senate. Cordray tried to hand off his duties to Deputy Director Leandra English, but that plan was thwarted when Trump designated White House budget director Mick Mulvaney for the post, then fended off initial legal challenges to that move.
“There has never been an agency like this,” Olson told the 11-judge panel in May. That tribunal consisted of six judges who were Democratic appointees and five picked by Republicans. Citing the CFPB’s power to enforce 19 consumer statutes, its non-Congressional funding source and Cordray’s insulation from dismissal, Olson asserted the bureau was “manifestly unconstitutional.”
The judges peppered him, CFPB lawyer Lawrence DeMille-Wagman and a Justice Department attorney with questions arising from Olson’s contention the Cordray-led CFPB actually took oversight powers away from a president.
DeMille-Wagman said it didn’t.
Three of the judges on the panel sided with Olson.
Circuit Judge Brett Kavanaugh said that absent the power to fire at will, "a President may be stuck for years with a CFPB Director who was appointed by the prior President and who vehemently opposes the current President’s agenda."
Kavanaugh said the appropriate remedy was to leave the bureau intact, but endow the president with the power to dismiss its director at any time.
In court, the CFPB lawyer said the president’s inability to select the next director at the start of a term in office was functionally no different than his inability to appoint a majority of the Federal Reserve whose board members serve staggered 14-year terms.
“It’s not a nothing,” DeMille-Wagman said of the president’s ability to remove the CFPB’s director only for cause. “It’s a power the president does have.” Still, when pressed, he was unable to cite an instance when any president attempted to exercise it.
The case is PHH Corp. v. Consumer Financial Protection Bureau, 15-1177, U.S. Court of Appeals, District of Columbia Circuit (Washington).