Ever since Congress created the Consumer Financial Protection Bureau, a pillar of the post-crash financial reforms and the brainchild of Massachusetts Senator Elizabeth Warren, Republicans have sought to undermine and ultimately dissolve the agency. “The CFPB is arguably the most powerful, least accountable agency in U.S. history,” Congressman Jeb Hensarling, chairman of the House Financial Services Committee, wrote in a representative op-ed for The Wall Street Journal last year. He called the bureau’s employees “zealots,” accusing them of “tyranny,” and argued that “even with good policy, the CFPB would still be unconstitutional.”

A federal appellate court disagreed on Wednesday, ruling that the CFPB’s unique structure doesn’t violate the constitutional separation of powers. The decision sets up a potential Supreme Court showdown over the president’s ability to oversee the powerful regulatory agency and remove its director.

In its 7-3 decision in PHH v. CFPB, the D.C. Circuit Court of Appeals upheld Congress’ decision to invest leadership of the consumer watchdog in a single director who can only be fired for “inefficiency, neglect of duty, or malfeasance in office.” That provision, the court explained, comes from a long, consistent history of keeping federal financial regulators at arm’s length from the elected branches of government. “Congress’s decision to provide the CFPB Director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will,” Judge Nina Pillard wrote for the majority. “We have no warrant here to invalidate such a time-tested course.”

But the court’s dissenters framed the dispute in blunter terms. “This is a case about executive power and individual liberty,” Judge Brett Kavanaugh wrote in his opening line. In the 73-page dissent that followed, Kavanaugh argued that combining the CFPB’s vast collection of powers with protections that insulate its director from presidential oversight threatens both principles. “In short, when measured in terms of unilateral power, the Director of the CFPB is the single most powerful official in the entire U.S. Government, other than the President,” Kavanaugh wrote. “Indeed, within his jurisdiction, the Director of the CFPB is even more powerful than the President. The Director’s view of consumer protection law and policy prevails over all others. In essence, the Director of the CFPB is the President of Consumer Finance.”

Both sides make their arguments well, and at great length: Their opinions and the shorter concurrences and dissents by their colleagues total 250 pages. But Kavanaugh’s may prove to be the most influential of them. If the Supreme Court takes up the case on appeal, his dissent provides the justices with a roadmap to either quash the CFPB’s independence or abolish the agency altogether.


The case’s origins aren’t as dramatic as that outcome may be. In 2015, CFPB regulators issued a $109 million penalty against PHH, a New Jersey-based mortgage lender, for referring its customers to a mortgage-insurance firm in exchange for kickbacks from that firm. Federal housing law bans the practice because it tends to unfairly inflate prices for homeowners.

PHH fought back by suing the watchdog agency on multiple grounds, including the constitutionality of its leadership structure. Under the Dodd-Frank financial reform act that created the agency in 2010, the CFPB’s director is nominated by the president to a five-year term. Once confirmed by the Senate, the CFPB director can only be removed by the president for cause under federal law. That provision runs contrary to the president’s general power to remove top executive-branch officials like the secretary of state or the FBI director at will. At the same time, it mirrors the protections for commissioners of some regulatory agencies, including the Federal Trade Commission and the Federal Reserve’s board of governors.

What makes CFPB’s structure unusual is that the for-cause protection is placed in a single director and not a board of officials like those that oversee the FTC, the Federal Reserve, and other financial regulators. Writing for the court, Pillard argued that this framework increases accountability by bringing what was once a scattered mix of consumer-protections functions under one director. “Now, if the President finds consumer protection enforcement to be lacking or unlawful, he knows exactly where to turn,” she reasoned.

Kavanaugh saw things differently. What happens, for example, if the president and the CFPB director are at loggerheads about the agency’s overall direction? Under Dodd-Frank, the president can’t fire him simply for disagreeing with his policy preferences. “The upshot is that a President may be stuck for years with a CFPB Director who was appointed by the prior President and who vehemently opposes the current President’s agenda,” he observed.

Such a situation isn’t hypothetical for President Donald Trump, who once called the consumer watchdog agency a “total disaster.” After he took office, the Justice Department abandoned its previous support for the CFPB and filed an amicus brief supporting mortgage lender PHH. At the time, a ruling in PHH’s favor would have allowed Trump to fire then-director Richard Cordray, an Obama appointee, and nominate his own pick to run the bureau.

But Cordray resigned last November to run for governor of Ohio, giving Trump an opportunity to reshape the agency ahead of schedule. The president installed OMB Director Mick Mulvaney, an outspoken critic of the CFPB who previously called it as “a sad, sick joke,” as its interim director. (Leandra English, the agency’s deputy director, contends that she is its legitimate leader, but federal courts have backed Mulvaney so far over her Avignon papacy.) Since taking over, Mulvaney has halted investigations and delayed regulations. Last month, he requested zero operating funds for the agency.


If the Supreme Court declines to overturn the D.C. Circuit’s ruling in CFPB’s favor, Trump would be able to install a director who couldn’t be fired by a future president without cause before his or her five-year term expires. If the justices decide to take up the case, and agree with the dissenters’ view of the for-cause provision, they could reach two different outcomes.

The first would be to strike the for-cause provision while leaving the rest of the CFPB’s structure intact. “Under that approach, the CFPB would continue to operate, but would do so as an executive agency,” Kavanaugh wrote. “The President of the United States would have the power to supervise and direct the Director of the CFPB, and to remove the Director at will at any time.”

The second option would go much further. Judge Karen Henderson also dissented from the majority’s ruling, but she parted ways with Kavanaugh’s dissent on the remedy. “Above all else, the 111th Congress wanted the CFPB to be independent: free, that is, from industry influence and the changing political tides that come with accountability to the President,” she explained. Accordingly, Henderson concluded that the creation of the CFPB should be ruled unconstitutional, and that Congress should “decide whether to resuscitate—and, if so, how to restructure—the CFPB.”

If the Supreme Court takes that path, Republicans in Congress who are hostile to the consumer-protection watchdog’s mission could bring it back in a radically diminished form—or not at all.