PHH-Redux: En Banc, the DC Circuit Gets a Second Chance to Make the Right Decision on the CFPB

PHH-Redux: En Banc, the DC Circuit Gets a Second Chance to Make the Right Decision on the CFPB

PHH-Redux: En Banc, the DC Circuit Gets a Second Chance to Make the Right Decision on the CFPB

By: *

Lying somewhere in the murky waters of constitutionality, the independent government agency has risen in the last century to be a favored tool of Congress to address complex policy issues. For instance, following the 2008 financial crisis, the Dodd-Frank Act[1] established the Consumer Financial Protection Bureau (CFPB), an independent government agency that centralized oversight of consumer protections and acted as a nationwide watchdog against exploitative practices by financial institutions. Since its establishment, the CFPB has secured a number of victories for consumers, including its whopping $100 million fine on Wells Fargo[2] for the bank’s creation of over 1.5 million fraudulent accounts and 565,000 fake credit cards.[3] Yet today, the very structure of the agency itself is under en banc scrutiny by the D.C. Circuit of the U.S. Court of Appeals, in what the CFPB characterizes as “[maybe] the most important separation-of-powers case in a generation.”[4] As of this writing, oral arguments are scheduled for May 24, 2017.[5]

Indeed, the issues raised by PHH Corporation v. Consumer Financial Protection Bureau[6] go to the heart of today’s administrative state and ask: What restraints, if any, does Congress face when creating new bureaucratic agencies? Today’s separation-of-powers jurisprudence is a far cry from the days of the New Deal, when the Court expressed a healthy amount of skepticism for delegating power to unelected bodies.[7] Since those days, the Court has walked back its initial hardline stance in recognition of the ubiquitous nature of the administrative agency in today’s society.[8] Still, the panel of the D.C. Circuit found in PHH that the structure of the CFPB””headed by a sole director appointed for a five-year term but removable only “for cause”[9]“”was a step too far.[10] To remedy what it deemed to be a constitutional flaw, the panel struck the “for cause” provision, which would leave the Director removable by the President at will. While the panel raises some valid concerns, ultimately, it overstates the issues and fails to recognize the advantages of the CFPB’s structure. On rehearing, the court should uphold the CFPB’s structure and provide Congress with the flexibility to design its independent agencies to best serve the public need.

The “Headless Fourth Branch”: The Panel’s Concerns

Admittedly, the now vacated opinion painted a grim picture of how the rise in independent agencies””and particularly the CFPB””threatens individual liberty. Judge Brett Kavanaugh characterized independent agencies as a “headless fourth branch of the U.S. Government” and “pos[ing] a significant threat to individual liberty and to the constitutional system of separation of powers.”[11] The CFPB’s structure, he continued, exacerbates these concerns by concentrating its leadership in only one individual and limiting the opportunities for the President to discipline the agency head.[12] A structure with multiple directors would at least facilitate “act[ing] as checks on one another . . . reduc[ing] the risk of arbitrary decisionmaking and abuse of power, and thereby help[ing] protect individual liberty.”[13] And worse, the single-director structure “represents a gross departure from settled historical practice,” an observation that the panel viewed as a death knell in the constitutionality of the CFPB structure.[14]

Some Room for Improvement on Rehearing

Nonetheless, the court’s analysis is short-sighted. For instance, the CFPB highlighted the separation-of-powers benefits that arise with a single-director agency: “a clear and effective chain of command,” thereby enabling the public (or the President) to “determine on whom the blame or the punishment of a pernicious measure . . . ought really to fall.”[15] The CFPB further noted that “even if fellow commissioners can keep an eye on one another, they cannot remove one another,” raising the important point that the multiheaded structure does nothing to alleviate the balance of power between Congress and the President.[16] And the panel itself betrayed its own argument on historical practice: they acknowledged in the opinion that other agencies in fact had the same single-head structure: the Social Security Administration, the Office of Special Counsel, and the Federal Housing Finance Agency.[17] Dismissing these as “[not] having deep historical roots,”[18] the panel grasped at straws to explain why these examples fail to establish precedent and nonetheless render the CFPB a “historical anomaly.”[19]

A more nuanced analysis would allow Congress the full range of tools it needs to address modern emergencies, such as a financial crisis. First, the D.C. Circuit should emulate the Supreme Court’s willingness to accept a for-cause provision as providing the President with “ample authority to assure that the [official] is competently performing his or her statutory responsibilities.”[20] Moreover, on rehearing, the Court should revisit the CFPB’s arguments that a single director structure may in fact enhance, rather than diminish, the appropriate checks and balances on the agency.[21] Finally, while courts should examine historical practice as one factor among many, they should be careful not to overemphasize this factor and thereby chill innovation by Congress to solve new and pressing problems. To wit, the majority cites the recent Supreme Court decision NLRB v. Noel Canning,[22] which relies upon historical analysis to support its holding that presidential recess appointments are valid if the recess is more than ten days, but constitutionally invalid if the recess is shorter.[23] This sort of historical analysis leads to arbitrary line-drawing at the expense of adequate examination of the underlying policy rationale.


The CFPB serves as a prime case study to understand how to optimize Congress’s ability to act quickly to solve a national crisis. Following the financial crisis, legislators had an urgent need to regulate the financial services industry and to create a centralized agency to protect consumers.[24] A unitary director is a logical fit to head an agency with demanding statutory initiatives and deadlines, where infighting among multiple commissioners could risk dampening an economic recovery. And ultimately, Congress may work with the President to revise the structure of the agency as circumstances change.[25] But at the time the CFPB was created, Congress determined that this structure would best meet its policy goals, and accordingly, this structure should be upheld. The Wells Fargo fiasco demonstrates that the agency is living up to its statutory purpose; if the President feels that it isn’t, he can bring a for-cause removal action.[26] With the growing complexity and interdependency of our economy, the average citizen is more vulnerable than ever to economic forces. By affirming the structure of the CFPB, courts can bolster the efficacy of independent agencies charged by Congress with a mission for the public good and isolated by good sense from the politicking and gridlock of everyday partisanship.


* J.D., University of California, Berkeley, School of Law, 2018; M.P.A., Baruch College School of Public Affairs, 2013; B.A., Yale University, 2010.

[1] Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (codified in scattered sections of U.S.C.),

[2] Michael Corkery, Wells Fargo Fined $185 Million for Fraudulently Opening Accounts, N.Y. Times (Sept. 8, 2016), [].

[3] Michael Corkery & Stacy Cowley, Wells Fargo Killing Sham Account Suits by Using Arbitration, N.Y. Times (Dec. 6, 2016), [].

[4] Petition for Rehearing En Banc at 1, PHH Corp. v. CFPB, No. 15-1177, 2017 U.S. App. LEXIS 2733 (D.C. Cir. Feb. 16, 2017).

[5] PHH Corp. v. CFPB, No. 15-1177, 2017 U.S. App. LEXIS 2733 (D.C. Cir. Feb. 16, 2017).

[6] 839 F.3d 1 (D.C. Cir. 2016), reh’g granted, No. 15-1177, 2017 U.S. App. LEXIS 2733 (Feb. 16, 2017),

[7] See, e.g., A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935),

[8] See, e.g., Whitman v. Am. Trucking Ass’ns, 531 U.S. 457 (2001),

[9] The Dodd-Frank Act defines “[r]emoval for cause” as due to “inefficiency, neglect of duty, or malfeasance in office.” 12 U.S.C. “§ 5491(c)(3) (2012),

[10] PHH, 839 F.3d at 8.

[11] Id. at 6.

[12] Id. at 8.

[13] Id. at 6.

[14] Id. at 8.

[15] Petition for Rehearing En Banc, supra note 4, at 10 (quoting Free Enter. Fund v. Public Co. Accounting Oversight Bd., 561 U.S. 477, 497 (2010)).

[16] Id. at 9″“10.

[17] PHH, 839 F.3d at 18.

[18] Id.

[19] Id. at 17.

[20] Petition for Rehearing En Banc, supra note 4, at 10 (quoting Morrison v. Olson, 487 U.S. 654, 692 (1988)).

[21] See supra note 15 and accompanying text.

[22] 134 S. Ct. 2550 (2014),

[23] PHH, 839 F.3d at 24.

[24] See, e.g., Jodi Kantor, Behind Consumer Agency Idea, a Tireless Advocate, N.Y. Times (Mar. 24, 2010), [].

[25] See, for example, the structure of the Social Security Administration, which has changed structures numerous times from multi-member agency to various iterations of single-director structures. PHH, 839 F.3d at 18.

[26] The new administration under President Donald Trump has filed an amicus curiae brief reversing the official stance of the Executive, and supporting a finding that the CFPB’s structure is unconstitutional. Brief for the United States as Amicus Curiae Supporting Petitioners, PHH, 839 F.3d 1 (No. 15-1177) (Mar. 17, 2017). What remains unclear is whether the administration will reverse its position should this matter extend through the end of current Director Richard Cordray’s current term in 2018, opening an opportunity for President Trump to appoint his own director removable only for cause.



Recommended citation: , PHH-Redux: En Banc, the DC Circuit Gets a Second Chance to Make the Right Decision on the CFPB, Calif. L. Rev. Online Blog (Apr. 19, 2017),

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