The CFPB Defends its Constitutionality in Second Circuit

Mar 19, 2019 | News

In an appeal filed last Friday, the Consumer Financial Protection Bureau (CFPB) argued that its organizational structure, including its “for-cause removal” provision, was constitutional because it met U.S. Supreme Court precedent.

The debate surrounding CFPB’s constitutionality centers on the fact that the CFPB is led by a single Director (as opposed to a Commission) who is removable by the President only for cause (as opposed to “at will”).

Over the past several years, the courts have been inconsistent on whether the CFPB is constitutionally structured. In January 2018 for example, the D.C. Circuit in PHH Corp. v. CFPB found, in a split ruling, that CFPB’s structure was constitutional.

Six months later, District Judge Loretta A. Preska ruled that the CFPB’s “composition violates the Constitution’s separation of powers.” As a result, the agency was unconstitutional, and all of Title X of the Dodd-Frank Act should be abolished. Title X established the CFPB to regulate and oversee consumer finance.

In their appeal, the CFPB argued that Judge Preska’s ruling was wrong. “Congress’ decision to head the bureau with a single director does not undermine the president’s oversight,” said the CFPB. “If anything, the bureau’s single-director structure enhances the president’s ability to execute the laws — by holding his subordinates accountable for their conduct.”

The CFPB also argued that if the Appeals Court rules that the CFPB is, in fact, unconstitutional, then the proper and more surgical solution would be to make the CFPB director fireable at will and not strike down Title X of the Dodd-Frank Act.

“With the for-cause removal provision severed, the bureau would continue to administer and enforce the consumer laws,” said the CFPB. “Therefore, if this court concludes that the removal provision is unconstitutional, it should declare that provision inoperative and remand this case to the district court to permit a reconstituted bureau to continue to pursue this action.”

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