Consumer Financial Protection Bureau building in Washington, D.C. (Photo: Diego M. Radzinschi / NLJ)
The U.S. Justice Department argued Friday that the Consumer Financial Protection Bureau should be stripped of its independence, a reversal of an earlier stance that the president only had the power to remove the Obama-era agency’s director for cause, not at will.
Justice Department lawyers told a Washington federal appeals court that the CFPB’s single-director design “lacks those critical structural attributes that have been thought to justify ‘independent’ status for multi-member regulatory commissions.”
“Moreover, because a single agency head is unchecked by the constraints of group decision-making among members appointed by different presidents, there is a greater risk that an ‘independent’ agency headed by a single person will engage in extreme departures from the president’s executive policy,” the Justice Department said in a friend of the court brief.
The full U.S. Court of Appeals for the D.C. Circuit is preparing to take up the constitutionality of the consumer bureau, an agency that Republicans and financial companies have long criticized as a rogue regulator that too often stretches outside its jurisdiction.
A divided three-judge panel in October, led by Brett Kavanaugh, found the “massive, unchecked” power of the director unlawful in October. The full appeals court later wiped out the panel decision in PHH Corp. v. CFPB, setting the stage for new argument on May 24. The case has attracted significant attention from pro-business groups, consumer advocates and state attorneys general.
Before Friday, the Justice Department had urged the full D.C. Circuit to review the panel’s decision but had not taken a position in the case on whether the president should be able to fire the CFPB director at will.
In an unrelated CFPB case in the Washington trial court, the Justice Department, under the leadership of then-Attorney General Eric Holder Jr., had defended the CFPB. The department said in that case that restrictions on the president’s authority to remove the agency director were lawful.
Citing the panel ruling in the PHH Corp. case, DOJ on Friday switched its position.
“After reviewing the panel’s opinion here and further considering the issue, the department has concluded that the better view is that the provision is unconstitutional,” DOJ lawyers wrote in their amicus brief.
The brief was submitted under the name of Chad Readler, the acting assistant attorney general in charge of DOJ’s Civil Division. Readler was among the Jones Day lawyers who joined the Trump administration.
The DOJ’s position was not a surprise. Earlier this month, DOJ lawyers said in a court filing that “the views of the United States on matters involving the president’s removal power are not always entirely congruent with the views of independent agencies.”
The consumer agency, created in the aftermath of the financial crisis, has defended itself in the appeals court. The D.C. Circuit earlier sought the views of the Justice Department. Those views are critical—they might come into play if the case, as expected, reaches the U.S. Supreme Court later this year.
Under the law that created the CFPB, Attorney General Jeff Sessions could prevent the agency from defending itself at the high court. That statute allows CFPB lawyers to appear before the Supreme Court only after receiving written permission from the attorney general or receiving no response within 60 days of their request.
PHH Corp., a mortgage lender, is represented by Gibson, Dunn & Crutcher partner Theodore Olson, who is set to argue in front of the en banc D.C. Circuit. The company is challenging a $109 million penalty for allegedly referring consumers to mortgage insurers in exchange for kickbacks.
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