Powerful Officials, Like the Director of the CFPB, Should Be Democratically Accountable
The Supreme Court has held that unaccountable officials pose a threat to liberty, and accordingly, has given the president, who is accountable to the voters, the power to fire many powerful officials, such as the heads of cabinet departments, at will, in order to render them democratically accountable. It has held that unaccountable officials pose a threat to liberty, and accordingly, has given the president, who is accountable to the voters, the power to fire many powerful officials, such as the heads of cabinet departments, at will, in order to render them democratically accountable. (Myers v. United States, 272 U.S. 52, 131 (1926). In its Myers decision, it quoted founding father James Madison’s observation that “for the security of liberty and the public good,” the President should have “the power of removal from office,” in light of his accountability to “the community.”
The Supreme Court subsequently created a limited exception to this right of presidential removal in its Humphrey’s Executor decision. That ruling allowed powerful officials, even principal officers, to be protected against firing without cause, but only where they served on a “commission” with “quasi-legislative and quasi-judicial” characteristics. (Humphrey’s Executor v. United States, 295 U.S. 602, 624, 629 (1935)). Such commissions are, by their very nature, multi-member bodies, and thus are characterized by collegial, rather than dictatorial decisionmaking. That process provides internal checks and balances. Their bipartisan makeup also makes them less likely to frustrate Presidential or Congressional policies, as does the fact that “the President has the power to choose the chairman of” such a commission from among its members, who serves as chair only “at the pleasure of the President.”
A panel of the D.C. Circuit Court of Appeals recognized these distinguishing features last year in striking down a provision that prevents the president from removing the head of a powerful agency that regulates the financial sector, the Consumer Financial Protection Bureau. In its PHH ruling, the panel noted that the head of this agency, a single individual, was not subject to collegial checks and balances the way other agencies are, even though the CFPB is an unusually powerful agency, thus violating the constitutional separation of powers: “In the absence of Presidential control, the multimember structure of independent agencies acts as a critical substitute check on the excesses of any individual independent agency head – a check that helps … protect individual liberty.” Multi-member commissions foster more deliberative decision-making, their structure “helps to avoid arbitrary decisionmaking,” and they are better at avoiding regulatory capture. (See PHH Corp v. CFPB, 839 F.3d 1 (D.C. Cir. 2016)).
While a three-judge panel of the appeals court ruled against the CFPB’s constitutionality, the full appeals court voted to rehear the case in February, and it will hear arguments in the case on May 24.
The CFPB was created by the 2010 Dodd-Frank Act, which gave it powers previously wielded by several different agencies and departments. More ominously, it gave the head of that bureau immunity from being removed without cause, even though it is headed not by a quasi-legislative commission, but by a single individual whose term in office can extend beyond that of the president who appointed him. The CFPB’s Director is Richard Cordray, who was appointed by President Obama, yet his term reportedly does not expire until July 2018.
Effectively, the CFPB’s head is the czar of consumer finance, able to impose regulations that make it harder to obtain or provide credit, even if that undermines an administration’s economic policy. Aggravating the CFPB’s unaccountability is the fact that it is not accountable through the appropriations process, either, because it is entitled to a generous amount of income from the Federal Reserve System, regardless of the wishes of the president and congressional appropriators.
The CFPB argues that the president’s inability to fire the CFPB’s head at will is no more of an encroachment on the president’s authority than his inability to fire the commissioners of multimember agencies at will. But if it were true that all that matters is the degree of encroachment on the president’s authority, then the 1935 Humphrey’s Executor decision was wrongly decided, since it upheld a restriction on removing members of a very powerful agency (the Federal Trade Commission), whose members had far more power than some of the officials whose removal protections were deemed illegal nine years earlier in the Supreme Court’s Myers decision (which upheld the president’s right to fire a lowly postmaster, although the Myers decision also emphasized the unconstitutionality of restricting the removal of cabinet officials and other department heads, in declaring the 1867 Tenure of Office Act unconstitutional).
The multi-member distinction is thus crucial. The CFPB argues that this distinction has no basis in Supreme Court precedent, and is a novel reading of the law by the D.C. Circuit panel. It argues that “Congress can, consistent with the Constitution, ‘create independent agencies run by principal officers…whom the President may not remove at will.’” It claims this is true even for a “single-Director” agency “rather than a multi-member body,” since “whether an independent agency is led ‘by one, three, or five members’ will result in ‘no meaningful different in responsiveness and accountability to the President.’” But there is nothing novel about the D.C. Circuit panel’s ruling, which is based on a distinction rooted not only in common sense, but also in “settled historical practice” and Supreme Court precedent.
For example, I raised this objection to the CFPB years before the panel’s ruling, long before the investigation and lawsuit that led to the D.C. Circuit panel’s ruling. As I noted in the Wall Street Journal in 2011:
The CFPB’s lack of checks and balances violates the constitutional separation of powers. It has a single head who can’t be fired even if voters elect a president with different ideas about how to protect consumers.
The usual rule under our Constitution is that the president can fire department heads at will, as the Supreme Court made clear in its Myers v. U.S. decision of 1926, which struck down a contrary law. An exception to this rule covers multimember agencies with a “quasi-legislative, quasi-judicial” role. But that exception doesn’t cover the CFPB, which is headed by a single leader not subject to collegial oversight.
The bureau’s defenders claim its autonomy is permissible because it is an independent agency. But that argument is circular, using independence to justify itself. Under that perverse logic, the very officials courts have said can be fired, like cabinet secretaries, could be given life tenure just by calling them “independent.” Moreover, just like the bureau, cabinet department officials write their own rules and regulations.
Indeed, many administrative law judges who perform quasi-judicial functions work within departments headed by cabinet secretaries.
The D.C. Circuit panel properly followed the Myers decision, which remains good law. Its status as the default constitutional rule is illustrated by the fact that the Supreme Court relied upon it to strike down removal protections for members of regulatory agencies that do not closely resemble the one upheld in Humphrey’s Executor in terms of their structure or accountability. It declared unconstitutional removal restrictions contained in the Sarbanes-Oxley Act in its decision in Free Enterprise Fund v. PCAOB, 561 U.S. 477, 505 (2010), a case that CEI was instrumental in bringing. It struck them down because they gave removal protections to members of an independent agency that itself was removable only by members of another independent agency, the Securities Exchange Commission—creating a dual layer of removal protections. The rarity of such dual protections for regulators, which existed at only a few agencies, rendered it unconstitutional, since the limited exception allowing removal protections created by the Humphrey’s Executor decision would not be extended to additional agencies that lacked firm historical precedent. As the Supreme Court explained, “Perhaps the most telling indication of the severe constitutional problem with the PCAOB is the lack of historical precedent for this entity.”
The D.C. Circuit panel decision striking down the CFPB’s removal restrictions similarly relied on this principle and the CFPB’s anomalous nature, noting that “the single-Director structure of the CFPB represents a gross departure from settled historical practice. Never before has an independent agency exercising substantial executive authority been headed by just one person.”