PHH Corp. v. Consumer Financial Protection Bureau

United States Court of Appeals for the District of Columbia Circuit · 2018 · Administrative Law

Administrative LawSeparation of PowersPresidential RemovalIndependent AgenciesArticle IICFPBfor-cause removalindependent agencies

Facts

Congress created the CFPB after the 2008 financial crisis as an independent bureau to administer and enforce federal consumer financial laws. The CFPB is headed by a single Director appointed by the President with Senate confirmation, serving a five-year term and removable by the President only for 'inefficiency, neglect of duty, or malfeasance in office.' PHH was subject to a CFPB administrative enforcement action, and further CFPB action on remand made it necessary for the en banc court to resolve PHH's constitutional challenge to the Director's removal protection. Congress also funded the CFPB through capped transfers from the Federal Reserve rather than ordinary appropriations.

Issue

Does the federal statute providing that the CFPB Director serves a five-year term and may be removed by the President only for 'inefficiency, neglect of duty, or malfeasance in office' violate Article II by impermissibly restricting the President's executive power? More specifically, is ordinary for-cause protection unconstitutional when applied to a single-director independent financial regulator?

Rule

Congress may provide ordinary for-cause removal protection to the head of an independent agency when the restriction does not impede the President's ability to perform his constitutional duty to take care that the laws be faithfully executed, and when a degree of independence is appropriate to the nature and function of the office. The ordinary for-cause standard of 'inefficiency, neglect of duty, or malfeasance in office' is constitutionally permissible, including for the CFPB Director.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Congress creates the Consumer Lending Integrity Bureau, a federal regulator based in Washington, D.C., to enforce existing consumer loan and credit-card statutes. The agency is headed by one Senate-confirmed Director who serves a five-year term and may be removed by the President only for inefficiency, neglect of duty, or malfeasance in office.

A payday-lending company in Phoenix challenges the agency's structure, arguing that Article II always forbids for-cause protection for any principal officer exercising executive authority. How should a court rule?

Explanation. The majority held that Congress may provide ordinary for-cause protection to the head of an independent agency when the restriction does not impede the President's ability to perform Article II duties and when some independence is appropriate to the office's functions. The standard of inefficiency, neglect of duty, or malfeasance in office is constitutionally permissible and leaves the President ample authority to remove an ineffective, neglectful, or malfeasant agency head. (Derived from PHH Corp. v. Consumer Financial Protection Bureau (n.d.).)