Symposium: Let the consumer watchdog do its job

Amy Teng is an assistant attorney general in the Washington Attorney General’s Office, which joined 22 other states and the District of Columbia on an amicus brief in support of the respondent in Seila Law LLC v. Consumer Financial Protection Bureau. The views stated herein are hers alone and are not attributable to the Attorney General of Washington.

In 2010, on the heels of the Great Recession, Congress created the Consumer Financial Protection Bureau to address the “serious structural flaws” of the financial regulatory system then in place to protect consumers, “including a lack of focus resulting from conflicting regulatory missions, fragmentation, and regulatory arbitrage.” Congress had come to realize that the agencies primarily charged with ensuring a financial institution’s safety and soundness could not prioritize consumer protection over that mission. To remedy the problem, Congress chose to establish a “strong and independent Bureau with a clear mission to keep consumer protections up-to-date with the changing marketplace.”

Congress recognized that a stand-alone consumer protection agency had to remain vigilant and respond quickly to ever-changing unfair and deceptive business practices that would harm consumers. The marketplace does not necessarily adapt for the benefit of consumers in response to additional consumer protection laws. As a Senate committee noted in its report on the Restoring American Financial Stability Act of 2010, even after the enactment of the Credit Card Accountability, Responsibility, and Disclosures Act, “credit card companies sought ways to structure products to get around the new rules, highlighting the difficulty of combating new problems with additional laws, while underscoring the importance of creating a dedicated consumer entity that can respond quickly and effectively to these new threats to consumers.” An agency committed to furthering consumer protection must be able to act decisively and promptly to conduct investigations and file enforcement actions to deter the proliferation of bad actors. A slow or weak response will not do the job. Not every investigation or enforcement action will be politically expedient for the president or his allies.

Based on these considerations, Congress intentionally structured the CFPB to be able to respond swiftly to consumer threats while remaining strong and independent, free from industry capture and external political pressures from the president. The CFPB shares its key structural characteristics with other primary financial regulatory agencies, including the Federal Housing Finance Agency and the Comptroller of the Currency. Like those agencies, the CFPB is headed by a single director, who is appointed by the president and confirmed by the Senate. The CFPB director serves a term of five years. The director may be removed from office by the president for “inefficiency, neglect of duty, or malfeasance in office,” which is the same removal standard applied to commissioners of the Federal Trade Commission. The FHFA director similarly may be removed only for cause. The CFPB director’s tenure’s extending beyond a presidential term is also consistent with the structure of other agencies. The OCC comptroller serves for five years. No single element of the CFPB’s structure exists that cannot also be found in the structure of another financial regulatory agency.

Yet despite the fact that Congress traced familiar territory in structuring the CFPB with these essential features, Seila Law argues that the bureau is a “historical anomaly.” As the examples above show, this assertion is incorrect. Even if the CFPB’s structural features were novel – which they are not – novelty would not be a basis for constitutional attack. As the Supreme Court observed in National Federation of Independent Businesses v. Sibelius, “[l]egislative novelty is not necessarily fatal; there is a first time for everything.”

To make its argument that the CFPB’s structure is unconstitutional, Seila Law distorts the line of Supreme Court removal cases that have held that Article II of the Constitution does not require every agency head to be removable at will by the president. The court made clear in Humphrey’s Executor v. U.S. that certain executive agencies maintain some independence “disconnected from the executive department,” and their directors may be removable by the president only for cause. Faced with President Franklin Roosevelt’s no-cause removal of an FTC commissioner, the Supreme Court deemed the commission to be a quasi-legislative and quasi-judicial body over which “[w]e think it plain under the Constitution … illimitable power of removal is not possessed by the President.”

Following Humphrey’s Executor, a line of removal cases further established that Congress could impose some degree of restraint on the president’s removal authority, other than over purely executive officers like Cabinet members. In allowing members of the War Crimes Commission to be removed by the president only for cause, the Supreme Court reasoned in Wiener v. U.S., “Congress did not wish to have hang over the Commission the Damocles’ sword of removal by the President for no reason other than that he preferred to have on that Commission men of his own choosing.” In later constitutional rulings on removal provisions such as Morrison v. Olson, the court turned away from considerations of whether the agency in question was more quasi-legislative or quasi-judicial than executive in nature, determining instead that “the real question is whether the removal restrictions are of such a nature that they impede the President’s ability to perform his constitutional duty.” Importantly, the court placed no emphasis in those decisions on whether the agency was led by an individual or by multiple officers. In Morrison, for example, the court pondered whether an independent counsel, acting alone and appointed under the Ethics and Government Act to carry out an investigation of an official in the Office of the Attorney General, could be removed by the president only for cause. The Supreme Court ruled that it “[did] not see how the President’s need to control the exercise of that discretion is so central to the functioning of the Executive Branch as to require as a matter of constitutional law that the counsel be terminable at will by the President.”

The court did not specify or suggest in Humphrey’s Executor that the constitutionality of the for-cause removal provision turned on the multi-commissioner structure of the FTC, yet Seila Law grabs onto this one structural feature as singularly significant and argues that it is necessary as “a matter of historical practice, protection against governmental tyranny, and presidential control.”

But as already noted, there is historical precedent for a single-director-led financial regulatory agency. And in practice, a multi-member leadership structure may be just as likely, if not more likely, to present problems for both good governance and presidential control. As an example, the FTC is headed by five commissioners, each serving a seven-year term. No more than three commissioners can be of one political party. Due to the staggered expiration of their terms, “a President may not be able to name even a single FTC commissioner until the autumn of his second or even third year in office. … [A] President can leave office without appointing a majority of FTC commissioners, which can hinder the gradual evolution of FTC policy.” Moreover, resignations and unfilled vacancies have at times led to equal numbers of Republican and Democratic commissioners, raising concerns about agency deadlock. In 2017, the FTC had two commissioners, one from each party, and it could only move forward with the commissioners’ unanimous consent. Similar circumstances have played out at the Commodity Futures Trading Commission, the Federal Energy Regulatory Commission and the Securities and Exchange Commission, as unfilled positions forced the agencies to push off addressing any difficult, politically fraught issues until the full complement of commissioners had been seated. In the interim, the marketplace remained uncertain of the agencies’ policies, and the president’s interests could not be carried out.

Congress knew the CFPB must be designed to act quickly and decisively to prevent another Great Recession. The CFPB’s single-director structure achieves that goal effectively. A multi-member structure is not mandated by the Constitution, nor would it represent the best outcome for consumers.

Congress also appreciated that within the realm of financial regulation, executive agencies charged with oversight must exercise some degree of independence from the president – and the Supreme Court recognized that for those agencies to work effectively, a political sword of Damocles could not loom over the agencies’ directors. One need only consider President Donald Trump’s efforts to rein in Federal Reserve Chairman Jerome Powell – whom Trump himself nominated – to understand why this is so. Trump has repeatedly stated that he wants the Federal Reserve Board to cut interest rates further and more often than it has — in his desire, the president may have concerns beyond monetary policy, such as his reelection. To Trump’s frustration, Powell is protected from termination by the for-cause removal provision in the Federal Reserve Act, as he and the rest of the board consider monetary policy with some independence from the president. Without a degree of insulation afforded by for-cause removal provisions, the independence necessary for the Fed, OCC, FHFA – and the CFPB – to accomplish their critical missions of ensuring considered monetary policy, financial institutions’ safety and soundness, consumer protection and the like would be at risk of being undermined in the name of political expediency.

Congress chose a single-director CFPB and decided to allow the president to remove the director only for cause. Prior Supreme Court decisions make clear that these features are consistent with Article II. The court should now uphold that precedent and allow the CFPB and its director to continue to carry out the agency’s mission effectively and independently.