Republicans and their business allies have been trying to nullify Elizabeth Warren’s brainchild, the Consumer Financial Protection Bureau, since its inception. And that makes sense, since in its first five years, CFPB has taken $11 billion in illegally gotten gains from financial-industry balance sheets and returned them to consumers. No other agency in the federal government has such a clear mission to protect the public from fraudulent scams, and despite the ferocious pushback, it has succeeded in making post-Great Recession financial purchases a little less hazardous.
So when a three-judge panel on the conservative D.C. Circuit Court of Appeals ruled on Tuesday that CFPB has an unconstitutional governing structure, giving Republicans their most desired wish, you’d think they’d have leapt for joy. But the agency will continue to function, and the ruling (which will be appealed) won’t come into play until the country elects a president—a Republican, almost surely—who wants to stop protecting the public from financial predators.
At most, if the ruling holds up, it will shift CFPB from an independent agency—structured so that it would be insulated from politics—to a kind of cabinet agency that changes with each presidential administration. That’s hardly ideal.
But there’s a twist here: The ruling might actually throw up a hurdle to the relentless Republican drive to torpedo the bureau, rather than spur it on. By labeling CFPB unconstitutional, the D.C. Circuit ironically protected the agency from attacks on its constitutionality.
Right now, CFPB operates with a director, Richard Cordray, who serves a five-year term, after being selected by the President and confirmed by the Senate. The President can remove the director at any time for “inefficiency, neglect of duty, or malfeasance in office.” Which means it’s harder to remove him than, say, an Attorney General or Secretary of Agriculture. The set-up was meant to insulate the director from political pressures, to give the agency the kind of independence that a consumer-protection bureau in Washington desperately needs.
CFPB’s opponents have long been screaming that this violates the Constitution. To them, you can’t have independent agencies unless the President can fire the director for any reason. The agencies with limits on the President’s ability to fire must have a bipartisan multi-member commission structure, they say, like the Securities and Exchange Commission or the Federal Deposit Insurance Corporation. That way, they say, the commission’s members can hold each other accountable and reach consensus.
Let’s be clear: This is a made-up standard. The Constitution never says a word about the “proper” structure for executive-branch agencies. And there are multiple agencies that have the exact same structure as CFPB: the Federal Housing Finance Administration, the Office of Special Counsel, the Social Security Administration, and the Office of the Comptroller of the Currency. The language in the conditions for removal for the Office of Special Counsel, in fact, is identical to CFPB’s.
The plaintiff in this case was PHH, a mortgage company that CFPB fined for $109 million for taking kickback payments for steering borrowers to certain mortgage insurance companies. Cordray issued the fine, after an Administrative Law Judge proposed a lighter penalty. PHH appealed, arguing (you guessed it) that CFPB was unconstitutional because it had an unaccountable single director.
The D.C. Circuit’s three-judge panel agreed. And Judge Brett Kavanaugh, who authored the opinion, decided to play model Congress. He took out the provision that CFPB’s director could be removed for “inefficiency, neglect of duty, or malfeasance in office,” allowing for at-will dismissal. CFPB can still operate in exactly the same fashion, Kavanaugh ruled, but “will do so as an executive agency akin to other executive agencies headed by a single person.” In this manner, “the President now will be a check on and accountable for the actions of the CFPB.”
It’s a silly ruling. But as Adam Levitin of Georgetown Law School (and a member of CFPB’s Consumer Advisory Board) points out, it changes absolutely nothing about the agency’s functions or its budget. It just makes it more susceptible to partisan rule: “Now the CFPB Director, instead of running on a five-year term, will be on a five-year term that might get curtailed with every change in Presidential administration,” he said. Trump or a future Republican president would likely have found, or invented, some cause to can a Democratic CFPB Director anyway. Tuesday’s ruling just makes it more transparent.
That’s not necessarily what Republicans, or the banking interests they serve, wanted. In a way, the ruling against CFPB backfired on them, because it effectively legitimizes the agency in the eyes of the courts. Republicans and their allies wanted to use these cases to eliminate the CFPB, not make it legal. It was very possible that the D.C. Circuit judges would follow this directive and just blow up the consumer bureau. They didn’t.
Even if this ruling is upheld on appeal, Republicans in Congress’ argument that CFPB must be tossed on constitutional grounds is significantly weakened. Responding to the ruling, Jeb Hensarling, Republican chair of the House Financial Services Committee, said that his bill, the Financial CHOICE Act, “solves the constitutional defect identified by the court.” But Judge Kavanaugh already solved it (if you accept that there was a constitutional defect, that is.) Nothing more needs to be done.
That’s why Senator Warren was smiling—warily, but still—on Tuesday. Under a President Hillary Clinton, at least, the agency can continue to operate with real independence for another four or eight years. Warren cast the the ruling as “a small, technical tweak,” noting that it doesn’t affect any other CFPB ruling in the past or future. “Continued Republican efforts to transform the agency’s structure or funding,” Warren wrote in a statement, “should be seen for what they are: attempts fostered by big banks to cripple an agency that has already forced them to return over $11 billion to customers who have been cheated.”
There’s no question banking interests and the politicians they help elect will continue to cut out CFPB’s heart at every opportunity. The problem is that a conservative judge just dulled their knife.