Yesterday, the U.S. Court of Appeals for the D.C. Circuit delivered a huge blow the Consumer Financial Protection Bureau (CFPB). In a terrific opinion on executive power and individual liberty, Judge Brett Kavanaugh wrote that the CFPB’s status as an independent agency headed by a single director violated Article II of the Constitution. 

Created by the Dodd-Frank Wall Street Reform and Consumer Protection Act in response to the 2008 financial crisis, the CFPB wields enormous power. Former White House Counsel Boyden Gray has characterized it as a “Frankenstein agency . . . without any meaningful oversight by the political branches.

At issue before the D.C. Circuit was the CFPB’s organizational structure—specifically its status as an independent agency headed by a single director who is subject to removal only for cause.

Article II vests the executive power in the President. Along with his executive officers, the President has the duty under Article II to take care that the laws be faithfully executed. It follows that it is within the President’s power to supervise, direct, and remove all subordinate officers in the executive branch—including the heads of executive agencies.

However, in 1935 in Humphrey’s Executor v. United States, 295 U.S. 602 (1935), the Supreme Court permitted Congress to create “independent agencies” that exercise executive power. These agencies, which Judge Kavanaugh described collectively as “a headless fourth branch of the U.S. Government,” promulgate rules in accordance with congressional statutes and bring enforcement actions. Thus, due to their “massive power and the absence of Presidential supervision and direction, independent agencies pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.”

The Supreme Court has allowed these independent agencies to exist in our system because they have historically consisted of multiple commissioners or board members—which dilutes the concentration of power. However, unlike other independent agencies such as the Federal Communications Commission, National Labor Relations Board, Federal Trade Commission, or Securities and Exchange Commission, the CFPB has a single director who “operates unilaterally without any check on his or her authority.”

     The D.C. Circuit concluded that this “represents a gross departure from settled historical practice” and ruled the structure unconstitutional. The petitioners argued that the appropriate remedy involved either shutting down the CFPB or invalidating all of Dodd-Frank, but the court took a much more narrow approach. Instead, it severed the “for cause” removal provisions from the statute, meaning that the President now has the power to supervise and remove the Director at will like any other executive agency. The Director will continue to serve a five-year term after being nominated by the President and confirmed by the Senate.

        This new accountability is welcomed, but it does not completely transform the CFPB into a traditional executive agency. It is still insulated from Congress’s power of the purse because it receives its budget (605.9 million for FY 2016) as a fixed percentage of the operating budget of the Federal Reserve (an independent agency). And its budget is also not subject to traditional congressional committee oversight. There are also lingering objections to the CFPB’s regulatory standards, rulemaking ability, and enforcement power.

Joining Judge Kavanaugh in the opinion was Judge Randolph. The third member of the panel, Judge Henderson, did not join the majority in concluding that the CFPB was unconstitutionally structured because she believed that the principles of judicial restraint required the court to consider nonconstitutional grounds for a decision prior to reaching the constitutional question. Because the petitioner also prevailed on a statutory challenge to the CFPB’s enforcement action under Section 8 of the Real Estate Settlement Procedures Act, Judge Henderson found it unnecessary to reach the merits of the constitutional claim.

The CFPB will now have to decide whether to seek en banc review or proceed directly to the cert stage. If the full D.C. Circuit chooses to hear the case, the timing is such that the Supreme Court would likely not hear the case during the October 2016 Term.

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Christian B. Corrigan is a Constitutional Litigation Fellow in Washington, D.C. He previously clerked for Justice Caleb Stegall on the Kansas Supreme Court. He is a member of the Federalist Society's Federalism & Separation of Powers Practice Group Executive Committee.