Fighting the CFPB: The Constitutional Merits of Single-Head Agencies
by Curtis Herbert
In the past couple of years, a slew of legal challenges have arisen about whether administrative agencies are constitutionally structured. In other words, are agency heads so far removed from oversight that they violate separation of powers principles? And does the fact that one person is in control make the agency constitutionally dubious? Today I will scrutinize one line of cases concerning the Consumer Finance Protection Bureau.
The CFPB is an agency that is at once usual and unusual. It is tasked with defending consumers from unlawful business dealings. Like most agencies, it handles complaints, answers questions, and issues press releases. It even runs its own blog. What makes this agency ripe for litigation, however, is that it’s headed by only one person: Director Kathy Kraninger. She runs an agency that wields an awesome array of powers. It enforces regulations (which it creates) against companies such as Capital One Bank, Wells Fargo, and State Farm; sends warning letters; and conducts research. But with great power comes great litigation, and in the fall of 2016 the D.C. Circuit dealt a devastating blow to the CFPB.
In a majority opinion by then-judge Kavanaugh, the circuit court ruled against the CFPB. For reasons that will soon become evident, the court ruled that agencies have become “a headless fourth branch of the U.S. Government,” and that they “pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.” The court looked to history for guidance, recognizing that agencies have typically been led by a divided panel rather than a vigorous executive. Then, citing a couple of Supreme Court cases, it concluded that the lack of historical precedent for a single director casts doubt on the CFPB’s legitimacy. The majority also contended that the concentration of power in a single director, combined with a lack of direct executive oversight, forms a position of nigh-unprecedented power, and thus constitutes a grave danger to the separation of powers. The final blow came when the majority declined to extend Humphrey’s Executor v. United States (1935), where the Supreme Court held that executive agency heads with quasi-legislative powers can’t be fired without Congress’s consent.
But the CFPB would live to fight another day. The D.C. Circuit granted en banc review, which means that the entire circuit reviews a case that a three-member panel had previously decided. Then the full court overturned Kavanaugh’s ruling. In contrast with the original opinion, the en banc majority extended Humphrey’s Executor. It found no precedent-based attack on the structure of the CFPB.
The dissenters countered with their own argument: “Humphrey’s Executor remains the exception, not the rule, and it does not apply here.” They attempted to distinguish Humphrey’s Executor from the CFPB case by examining the former’s underlying facts. First, the CFPB, as opposed to the FTC, has one director rather than a multi-member panel. Plus, the CFPB is further insulated from oversight through a provision that ensures limited accountability to Congress. While “the FTC must go to the Congress every year with a detailed budget request explaining its expenditure of public money,” the CFPB is, “As the agency itself declares, . . . fund[ed] outside of the congressional appropriations process to ensure full independence.” The new dissenters cite a particularly funny exchange from a congressional hearing, where upon being asked who gave the go-ahead for a $200+ million project, the Director simply posed a counter-question: “Why does it matter to you?” The CFPB is removed from many of the important checks on agency authority in a way that the FTC never was.
The new majority responds by saying that “the CFPB’s independent funding source has no constitutionally salient effect on the President’s power.” Because they see this as purely a case about whether the President’s removal power has been infringed upon, it makes little sense to them to look at funding. The same logic applies to the fact that the CFPB has one director. If this fact doesn’t interfere with the president’s ability to oversee the agency, then it isn’t relevant. Therefore, the majority sees no reason to allow agencies’ structures to necessarily dictate their constitutionality.
In my opinion, the case turns on who can make a more convincing argument about whether the CFPB is sufficiently distinct from the FTC at issue in Humphrey’s Executor. I think the dissent gets the better of this argument, in large part because the Supreme Court’s jurisprudence in this area is chock full of distinctions. The most notable example is a case called Free Enterprise Fund, which invalidated an agency whose board had two levels of insulation (rather than one) from the president. The Supreme Court held that because of that difference in the way the agencies were structured, Humphrey’s Executor did not apply.
To be clear, I don’t think that Humphrey’s Executor’s applicability should turn on only the fact that the CFPB has one director, while the FTC has a multi-member board. The courts must take into account other factors, such as the level of congressional oversight. After all, many different factors contribute to an agency’s authority. We shouldn’t view each factor in isolation.
Next post, I’ll explain why a similar case out of the Fifth Circuit has perhaps even broader implications.