Ninth Circuit Rules in Favor of CFPB Constitutionality

A Ninth Circuit panel said that the leadership structure of the Consumer Financial Protection Bureau (CFPB) is constitutional, keeping the Ninth Court aligned with the D.C. Circuit’s ruling in PHH Corporation v. CFPB.

Critics often argue that the CFPB is unconstitutional by pointing out that the federal agency is led by a single director, as opposed to a commission, who is only fireable for-cause, as opposed to at-will. Combined with the fact that the CFPB is not appropriated by Congress gives the federal agency incredible independence from both the White House and Congress.

But in the most recent case, the Ninth Circuit panel said that Supreme Court precedent justifies the current CFPB structure. “In short, we view Humphrey’s Executor and Morrison as controlling here,” said U.S. Circuit Judge Paul J. Watford. “Those cases indicate that the for-cause removal restriction protecting the CFPB’s director does not impede the president’s ability to perform his constitutional duty to ensure that the laws are faithfully executed.”

Humphrey’s Executor is in reference to a 1935 Supreme Court ruling in Humphrey’s Executor v. United States, where the Supreme Court upheld the Federal Trade Commission’s (FTC) for-cause removal of its five-member commission. Of course, the FTC is led by a five-member commission whereas the CFPB is led by a single director.

In response to this potential criticism, the Ninth Circuit referenced the 1988 Supreme Court decision in Morrison v. Olson as well. In this case, the Supreme Court also upheld the for-cause removal of an independent counsel, who was “exercising one of the most significant forms of executive authority: the power to investigate and prosecute criminal wrongdoing.”

Most importantly, the Ninth Circuit decision prevents a circuit court split, reducing the chances that the issue will be heard by the Supreme Court. Nevertheless, the “Second Circuit is poised to rule on the agency’s constitutionality in CFPB et al. v. RD Legal Funding LLC et al … and the Fifth Circuit is set to do the same in CFPB v. All American Check Cashing Inc. et al., according to Law360.