Consumer protection director’s power runs unchecked

Richard Cordray, the director of the Consumer Financial Protection Bureau (CFPB), is a very powerful person. So powerful, in fact, that last year, in a decision captioned PHH Corp. v. CFPB, a three-judge panel of the D.C. Circuit stated that “other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.”  

The question is to whom, if anyone, such unelected officials are ultimately accountable and, in particular, whether they can be removed by the president without cause. Article II of the Constitution states: “The executive Power shall be vested in a President of the United States of America.”  But the Dodd-Frank Act of 2010, which created the CFPB and granted the director massive executive power, protects him from removal by the president except for cause.

{mosads}Cause is a very difficult standard to meet. A difference between the president and the CFPB’s director, with respect to how laws should be enforced and what rules should be adopted, is unlikely to constitute cause. As a practical matter, the president lacks the power to supervise, direct, or remove at will the director of the CFPB. 

Congress also does not have the power to remove the director of the CFPB. Indeed, its elected members do not even have authority over the CFPB’s budget, because, unlike most government agencies, the CFPB operates outside the congressional appropriations process. Even if Congress had such power, which it does not, that would not address the fact that the Framers placed executive power in the hands of the executive and his subordinates.

Moreover, unlike nearly all other enforcement agencies, there are no CFPB commissioners to act as a check on the CFPB director’s authority. The CFPB is not a multi-member commission. It is a single-director bureau. As the D.C. Circuit pointed out, “The Director alone decides what rules to issue; how to enforce, when to enforce, and against whom to enforce the law; and what sanctions and penalties to impose on violators of the law.”   

The D.C. Circuit observed that, from a unilateral-power perspective, the director’s unilateral power exceeds that of the speaker of the House, who needs 218 members to agree to pass legislation; the Senate majority leader, who needs 60 senators to invoke cloture and a majority to approve a law or nomination; or the chief justice, who must obtain four other justices’ votes for his or her position to prevail.

The director is also more powerful than the chair of the Federal Reserve, who needs the approval of a majority of the Federal Reserve Board; the chairs of nearly every other enforcement agency, who need a majority of the commissioners to join in a rule proposal or enforcement action; or the secretary of defense, the secretary of state, and the secretary of the Treasury, who are supervised and directed by the president and, therefore, must ultimately do what the president says or resign.

Moreover, the CFPB’s director has unilateral power in directing an agency that itself has enormous powers. The CFPB has authority to adopt rules and bring enforcement actions with regard to 19 federal consumer protection statutes, which were previously administered by seven different agencies. The D.C. Circuit described such administrative agencies as a “headless fourth branch of the U.S. Government.”

In its short existence, the CFPB has already obtained nearly $12 billion in relief from financial institutions, generally without the need to litigate the issues on the merits. It has passed rules of gargantuan complexity, which have forced financial institutions to devote hundreds of millions of dollars to understanding and implementing them and which have left them at risk for enforcement actions based on entirely unintentional violations. 

It has sought monetary relief in amounts that many believe are untethered to the harm caused by the alleged violations.  In the PHH case, a three-judge panel of the D.C. Circuit held that it violated Article II of the Constitution for a director of a single-director agency not to be removable by the president without cause. It held that the appropriate remedy was for the CFPB’s director to be deemed removable by the president without cause. 

The CFPB, however, petitioned for rehearing by the full court, and, last Friday, the full D.C. Circuit agreed to hear the case. Oral argument has been scheduled for May 24. Until the full D.C. Circuit decides the issue, it remains unsettled whether an unelected appointee with massive executive powers unchecked by the president, by any other elected official, or by a multi-member commission satisfies the Article II requirement that executive power be vested in the president of the United States.   

Jon Eisenberg is a partner at K&L Gates in Washington, D.C. Eisenberg focuses on representing financial institutions and individuals in enforcement matters, litigation, and internal investigations. Eisenberg previously worked for the SEC’s Office of General Counsel. 

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