Court rules CFPB director must serve ‘at will’ of the president

Oct. 11, 2016 -- - A federal court Tuesday ruled that the single-director structure of the Consumer Financial Protection Bureau (CFPB) as devised is unconstitutional, representing too great a concentration of executive power – and that the director, consequently, must serve at the will of the president (and not be subject for removal only “for cause”).

The ruling did not suspend the agency, nor rule its enforcement actions or regulations to date were unconstitutional.

The decision, reached by the U.S. Court of Appeals for the D.C. Circuit, found that the way the law creating the consumer bureau is written is unconstitutional, in that the CFPB is the first agency to concentrate administrative powers in an independent single director not removable except for cause.

"That combination of power that is massive in scope, concentrated in a single person, and unaccountable to the President triggers the important constitutional question at issue in this case," wrote Appeals Court Judge Brett Kavanaugh, writing for the majority. "The CFPB's concentration of enormous executive power in a single, unaccountable, unchecked director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency."

As a result, the panel ruled to strike the clause in the Dodd-Frank Act (the enabling legislation for the CFPB) which said the director could be removed "for cause," effectively allowing the president to dismiss the head of the agency at will.

The ruling came as part of a lawsuit brought by PHH, a nonbank mortgage lender, against CFPB Director Richard Cordray who issued an order against the firm for $109 million over an alleged kickback scheme. PHH argued the agency's single-director structure and its funding outside of congressional appropriations were unconstitutional.

However, Kavanaugh remanded the PHH case back to the CFPB while striking only the "for cause" provision in Dodd-Frank. Striking down the portion of Dodd-Frank that stipulates that the CFPB director may only be dismissed for cause would make the agency constitutional, Kavanaugh wrote. "To remedy the constitutional flaw, we follow the Supreme Court's precedents … and simply sever the statute's unconstitutional for-cause provision from the remainder of the statute," Kavanaugh stated. "Here, that targeted remedy will not affect the ongoing operations of the CFPB. With the for-cause provision severed, the president now will have the power to remove the director at will, and to supervise and direct the director."