Why the DOJ Brief in PHH, Arguing that the CFPB is Unconstitutionally Structured, is Wrong

by Jeff Sovern

The Department of Justice has now filed its brief in PHH, arguing that the CFPB as created by the Dodd-Frank Act was unconstitutional because the statute did not give the president the power to fire the Bureau's director without cause, and that the appropriate remedy is the one selected by the original panel: permit the president to fire the director at will. The Government recognizes that the leading precedent that allows Congress to establish independent agencies whose leaders cannot be fired by the president, is Humphrey's Exec. v. United States, which held that the president could not fire a Federal Trade Commission commissioner without cause. But DOJ argues that Humphrey's is distinguishable because the FTC has five commissioners, and the CFPB has a single director. DOJ so states because multimember organizations are deliberative; their members serve staggered terms, yielding continuity; and a president would be able to appoint some members of such a commission within a single term, while a president with a four-year term might not be able to appoint a CFPB director (who serves for five years) during that term.

In my view, while reasonable people could differ as to whether a particular agency is better created as a commission or with a single director, DOJ's reasons do not rise to the level of affecting the constitutionality of such bodies. The relevant constitutional provisions in this area state that the president wields executive power and that the president shall take care that the law is faithfully executed. DOJ's arguments don't implicate those provisions. Yes, commissioners are likely to deliberate over their actions, but what does that have to do with the president's authority? Yes, commission members may serve staggered terms, but again, so what? How does that implicate the president's duty to take care that the law is faithfully executed? Yes, a president might not be able to appoint a director, but a president might also not be able to appoint a majority of a commission's members, meaning that the commission can just as easily flout the president as a director.

I don't want to reprint the entire discussion from Humphrey's on this issue, because that would make the post too long, but I have linked to Humphrey's above in case you want to read it in its entirely. I'm going to paste in an excerpt from Humphrey's below. As you read it, think about two things: first, does any of the Court's reasoning depend on the fact that the FTC was a commission, and second, if you substitute "Consumer Financial Protection Bureau" for "Federal Trade Commission" and the CFPB's statutory powers instead of the FTC's, would it describe the CFPB accurately:

The Federal Trade Commission is an administrative body created by Congress to carry into effect legislative policies embodied in the statute in accordance with the legislative standard therein prescribed, and to perform other specified duties as a legislative or as a judicial aid. Such a body cannot in any proper sense be characterized as an arm or an eye of the executive. Its duties are performed without executive leave and, in the contemplation of the statute, must be free from executive control. In administering the provisions of the statute in respect of "unfair methods of competition" — that is to say in filling in and administering the details embodied by that general standard — the commission acts in part quasi-legislatively and in part quasi-judicially. In making investigations and reports thereon for the information of Congress under § 6, in aid of the legislative power, it acts as a legislative agency. Under § 7, which authorizes the commission to act as a master in chancery under rules prescribed by the court, it acts as an agency of the judiciary. To the extent that it exercises any executive function — as distinguished from executive power in the constitutional sense — it does so in the discharge and effectuation of its quasi-legislative or quasi-judicial powers, or as an agency of the legislative or judicial departments of the government.

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We think it plain under the Constitution that illimitable power of removal is not possessed by the President in respect of officers of the character of those just named. The authority of Congress, in creating quasi-legislative or quasi-judicial agencies, to require them to act in discharge of their duties independently of executive control cannot well be doubted; and that authority includes, as an appropriate incident, power to fix the period during which they shall continue in office, and to forbid their removal except for cause in the meantime. For it is quite evident that one who holds his office only during the pleasure of another, cannot be depended upon to maintain an attitude of independence against the latter's will.

The Department of Justice might not like it, but the CFPB is constitutional.