[Jonathan H. Adler] Court rules Consumer Financial Protection Bureau is subject to constitutional constraints

Yesterday, in PHH Corporation v. Consumer Financial Protection Bureau, a divided panel of the U.S. Court of Appeals for the D.C. Circuit held that the CFPB, as created by Congress, is unconstitutional. Specifically, the court found that it was unconstitutional for Congress to vest so much executive authority in an agency headed by a “single, unaccountable, unchecked Director.” The court also concluded that, in pursuing an enforcement action against a mortgage lender, PHH Corp., the CFPB misinterpreted its statutory authority and sought to apply its interpretation retroactively, in violation of due process.

Despite finding the CFPB to be “unconstitutionally structured,” the court did not eliminate the agency, however. Instead, the panel followed the Supreme Court’s recent practice of excising the agency’s constitutional infirmity while leaving the rest intact. As a consequence, the CFPB will continue to operate, albeit under more direct executive branch control. What this means, as a practical matter, is that future presidents will be able to ensure that the CFPB operates consistent with such administrations’ policy preferences.

Judge Brett Kavanaugh’s opinion for the court is quite lengthy, topping out at page 101. His opinion is joined in full by senior circuit judge Raymond Randolph, who wrote a separate concurrence flagging an additional potential constitutional infirmity within the CFPB and its enforcement apparatus. Judge Karen Henderson concurred-in-part and dissented-in-part, agreeing with the majority on the statutory points, but concluding that it was unnecessary to reach the structural constitutional issue that occupied the bulk of Kavanaugh’s opinion.

I’ve excerpted portions of the majority opinion below. For a shorter overview of the relevant doctrinal questions and the court’s conclusions, I recommend Aaron Nielson’s summary at Notice & Comment. See also my co-blogger Stuart Benjamin’s post from yesterday on Kavanaugh’s treatment of relevant precedent, Morrison v. Olson (the decision upholding the constitutionality of the independent prosecutor) in particular.

At this point I’d normally post the introductory summary portion of the opinion, but in this case that “introduction” spans 11 pages, so here are some of the relevant bits.

This is a case about executive power and individual liberty. The U.S. Government’s executive power to enforce federal law against private citizens – for example, to bring criminal prosecutions and civil enforcement actions – is essential to societal order and progress, but simultaneously a grave threat to individual liberty.

The Framers understood that threat to individual liberty. When designing the executive power, the Framers first separated the executive power from the legislative and judicial powers. “The declared purpose of separating and dividing the powers of government, of course, was to ‘diffus[e] power the better to secure liberty.’” . . .  To ensure accountability for the exercise of executive power, and help safeguard liberty, the Framers then lodged full responsibility for the executive power in the President of the United States, who is elected by and accountable to the people. . . .

Of course, the President executes the laws with the assistance of subordinate executive officers who are appointed by the President, often with the advice and consent of the Senate. To carry out the executive power and be accountable for the exercise of that power, the President must be able to control subordinate officers in executive agencies. In its landmark decision in Myers v. United States . . . authored by Chief Justice and former President Taft, the Supreme Court therefore recognized the President’s Article II authority to supervise, direct, and remove at will subordinate officers in the Executive Branch.

In 1935, however, the Supreme Court carved out an exception to Myers and Article II by permitting Congress to create independent agencies that exercise executive power. See Humphrey’s Executor v. United States . . . An agency is considered “independent” when the agency heads are removable by the President only for cause, not at will, and therefore are not supervised or directed by the President. Examples of independent agencies include well-known bodies such as the Federal Communications Commission, the Securities and Exchange Commission, the Federal Trade Commission, the National Labor Relations Board, and the Federal Energy Regulatory Commission. Those and other established independent agencies exercise executive power by bringing enforcement actions against private citizens and by issui