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October 11, 2016
  PHH Corp. v. Consumer Finance Protection Bureau
Headline: D.C. Circuit says single-director structure of independent Consumer Finance Protection Bureau violates Article II of the Constitution.

Area of Law: Separation of Powers; Article II; Constitutional Law

Issue Presented: Whether, under Article II of the Constitution, Congress can create an independent agency headed by a single director, removable by the President only for cause.

Summary: The Consumer Finance Protection Bureau (CFPB), an independent agency with a single director created by the Dodd-Frank Act, is charged with unilateral enforcement of nineteen federal consumer protection statutes. The single director decides what rules to issue and how, when, and against whom to enforce the laws and is by statute removable by the President only for cause. Petitioner PHH Corp., a mortgage lender subject to CFPB enforcement action, challenged CFPB's status as an independent agency governed by a single director under Article II of the Constitution. PHH Corp. argued that either the agency's director must be removable at will by the President, or, if structured as an independent agency, the CFPB must be restructured as a multi-director commission.

The D.C. Circuit agreed with PHH Corp. that the CFPB's structure is unconstitutional. The court noted that independent agencies have a tenuous position in our separation of powers structure and represent a departure from the fundamental understanding that Article II grants the President power to supervise, direct, and remove executive officers. The court noted that Humphrey's Executor v. United States, 295 U.S. 602 (1935), which upheld independent agencies against constitutional challenge, did so on the understanding that they were comprised of nonpartisan bodies of experts. At that time and ever since, with only "anomalous" exceptions, independent agencies have operated with multi-member governance structures. Looking to this consistent history and settled practice, as well as the massive unilateral power possessed by the CFPB director to administer and oversee enforcement of nineteen laws, the court found great risk of arbitrary decision-making and abuse of power in the CFPB as presently constituted. The court was not persuaded that the director's advisory board mitigated any risk because the director is free to disregard the advisory board's advice. The court acknowledged that, in extreme circumstances, a supermajority of the Financial Stability Oversight Council has veto power over CFPB regulations but found that the Council's limited role did not suffice to make the CFPB the functional equivalent of a multi-member agency.

Turning to remedy, the D.C. Circuit followed the Supreme Court's lead in severing the provision permitting removal of the director only for cause from the rest of the statute. With the for-cause provision thus excised, the court held that the President has authority to remove the director at will and to supervise and give direction to the director, thus bringing the CFPB in line with regular executive agencies within the executive chain of command. The court observed that, while another potential cure for the constitutional infirmity might be to turn an independent CFPB into a multi-member commission, the "editorial freedom" making such a change would require was for Congress, not the judicial branch.

Because its severability determination left the CFPB intact, the court then proceeded to address and resolve PHH Corp.'s statutory arguments, ultimately agreeing with PHH Corp., vacating the CFPB's order, and remanding for reconsideration.

Judge Randolph concurred to raise an additional constitutional infirmity, noting that the ALJ who presided over PHH Corp.'s initial hearing was an "inferior officer" under Article II who had to be appointed by the President, courts of law, or heads of departments and was not so appointed.

Judge Henderson concurred in part and dissented in part on the basis that the success of PHH Corp.'s statutory arguments made resolution of the underlying constitutional question unnecessary.

For the full text of this decision, please visit$file/15-1177-1640101.pdf.

Panel: Circuit Judges Henderson and Kavanaugh and Senior Circuit Judge Randolph

Argument Date: April 12, 2016

Date of Issued Opinion: October 11, 2016

Docket Number: No. 15-1177

Decided: Vacated and remanded

Case Alert Author: Elizabeth Earle Beske

Counsel: Theodore B. Olson, Helgi C. Walter, Mitchel H. Kider, David M. Souders, Thomas M. Hefferon, and William M. Jay for Petitioners. Lawrence DeMille-Wagman, Meredith Fuchs, and John R. Coleman for Respondent.

Author of Opinion: Circuit Judge Kavanaugh

Case Alert Circuit Supervisor: Elizabeth Earle Beske & Ripple Weistling

    Posted By: Ripple Weistling @ 10/11/2016 01:54 PM     DC Circuit  

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