Removal of the Director of the Consumer Financial Protection Bureau

Recently, a three judge panel on the D.C. Circuit held in PHH Corp. v. Consumer Financial Protection Bureau, that the for cause removal provision for the director of the Consumer Financial Protection Bureau was unconstitutional. Rather than striking down the entire statute, the court struck the for cause removal provision, leaving the director subject to removal at the pleasure of the President.

The Bureau is an example of the newest philosophy in administrative governance, which the Democrats have pursued in Sarbanes Oxley, Obamacare, and the Dodd-Frank banking act. The idea is to maximize the independence of administrative agencies and to enhance their power. In terms of maximizing the independence of the Bureau, the Bureau does not answer to the President (that is what the for cause removal provision means) and it is funded through the Federal Reserve, so that the Congress cannot use its appropriations power to control the agency. The power of the agency is enhanced, because it is controlled by a single director rather than a bipartisan commission as virtually all independent agencies are. Needless to say, this new philosophy of governance is extremely problematic.

The D.C. Circuit decision by Judge Kavanaugh has been subject to some criticism, but I approve of it on a variety of grounds.  In this post, let me discuss the question from the perspective of originalism and precedent. In my view, the Constitution’s original meaning, through the Executive Power Vesting Clause, grants the President authority to remove or direct principal executive officers (I leave aside for now whether it is the power to remove or direct or both).

The basic argument here is a little different for direction and removal. For removal, the argument is that Executive Power Vesting Clause gives the President the traditional authority of executives that was not taken away by the Constitution. Since executives traditionally had the authority to remove principal officers and since the Constitution is otherwise silent on removal, the President enjoys that authority.

Of course, Supreme Court precedent has allowed removal restrictions on executive officials since at least Humphrey’s Executor. But as Judge Kavanaugh notes, no significant Supreme Court precedents or long standing practice allows removal restrictions on single headed agencies. Instead, these restrictions have been limited to multi-member commissions. Thus, there is no clear precedent on point.

One could, of course, extend Humphrey’s Executor and other precedents to single headed agencies, but the question is whether the courts are required to do so. It is by no means clear that they are. In Free Enterprise Fund v. Public Company Accounting Oversight Board, Chief Justice Robert’s decision largely followed the type of analysis applied by the D.C. Circuit. Roberts described the removal authority of the President as flowing from the Constitution. He described the permissibility of removal restrictions as coming from precedent. Since the removal restriction in that case was not covered by precedent, the opinion followed the original meaning.

Moreover, the D.C. Circuit’s attempt to distinguish the precedent makes sense. The court noted that the separation of powers operates to place checks on agency officials. Those could be provided by the President (when there were no removal restrictions) or by the other commission members (when there were removal restrictions). Thus, not extending the precedent to a single-headed agency made sense.

The check on a commission would be more effective if the commissioners were required to be bipartisan, as most commissions seem to be. It does not appear that the D.C. Circuit imposed this requirement, which would have made sense in terms of its reasoning. It may be that the precedent and practice upon which the court relied only supported a commission rather than a bipartisan commission.