CFPB’s Independent Director


By: Nick Kaylor, Volume 102 Staff Member

The Consumer Financial Protection Bureau (“CFPB”) received a small victory on January 31, 2018, when an en banc panel of the D.C. Court of Appeals upheld 7-3 the agency’s single director structure as constitutional.[1] PHH Corporation (“PHH”)—the mortgage lender who brought the original action against the CFPB—has yet to file a petition for a writ of certiorari to the U.S. Supreme Court.[2] It is unclear whether PHH Corporation will appeal to the Supreme Court as circumstances have changed since the original action was filed. Richard Cordray, the former director of the agency, has stepped down and President Trump appointed Mick Mulvaney—a zealot opponent to the agency’s existence—to take Cordray’s place.[3] This Post will discuss the recent decision by the D.C. Circuit and constitutional arguments raised regarding the CFPB’s independent director structure.


The story of America’s new “watchdog” agency begins with the second largest financial collapse in the history of the United States: The Great Recession. In general, one of the root causes of the crisis was mortgage lenders pumping out “subprime” loans to borrowers with poor credit histories.[4] To leverage the risk, the mortgage lenders turned to the “engineers” on Wall Street to create financial products that would lure in investors.[5] In 2007, a bankruptcy professor at Harvard Law School named Elizabeth Warren called for the creation of a federal consumer watchdog to guard against bad lending practices.[6] Thus, the CFPB was born through the Dodd-Frank Wall Street Reform and Consumer Protection Act.[7]

Advocates for the CFPB urged that the agency’s structure should insulate it from industry capture and political interference from Congress.[8] With these concerns in mind, the CFPB was created as an independent agency with a single director.[9] Uniquely, the agency does not receive its funding through the Congressional appropriations process, but rather through the Federal Reserve Bank.[10] Therefore, the agency has complete budgetary independence from Congress, which means its regulatory and enforcement mechanisms cannot be handicapped by Congress slashing its budget.[11]

The CFPB is headed by a single director who is appointed by the President with the advice and consent of the Senate.[12] The director is appointed for a single, five-year term and is removable only for cause.[13] Specifically, the director can only be removed for “inefficiency, neglect of duty, or malfeasance in office.”[14]


The litigation involving PHH began when the CFPB brought charges against the company alleging that it had engaged in a mortgage insurance kickback scheme.[15] A “kickback” is a payment for compensation for providing favorable treatment or services to another.[16] Under the Real Estate Settlements Procedures Act (RESPA), kickbacks are illegal because they “unnecessarily increase the cost of mortgage settlement services.”[17] The director of the CFPB at the time, Richard Cordray, “borrowed” an administrative law judge (ALJ) from the Securities and Enforcement Commission (SEC) to make a recommendation on the charges.[18] The ALJ recommended that PHH should pay disgorgement of $6.4 million, but Richard Cordray disagreed with that assessment.[19] Instead, Richard Cordray ordered that PHH pay a disgorgement of $109 million.[20] Rather than paying the disgorgement, PHH challenged the order against it by arguing that the CFPB’s status as an independent agency, headed by a single director, violates Article II of the Constitution.[21] Specifically, PHH challenged that the CFPB’s single director structure impeded the President’s ability under Article II of the Constitution to “take Care that the Laws be faithfully executed.”[22]


On October 11, 2016, PHH was successful in securing a favorable 2-1 decision from the D.C. Circuit that the CFPB’s single director structure was unconstitutional because it violated Article II of the Constitution.[23] The plurality of the three-judge panel found that the CFPB was so powerful and so independent that it could not be held accountable by any branch of government.[24]

The plurality discussed the President’s powers under Article II to appoint executive officers and the President’s ability to remove these officers at will.[25] The plurality then proceeded to discuss the creation of independent agencies and Congress’ authority to limit the President’s power to remove officers of independent agencies.[26] The plurality discussed how, generally, independent agencies are headed by multi-member, bipartisan bodies, whereas the CFPB was headed by a single individual.[27] The plurality stated “the Director enjoys more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the President.”[28] The plurality found that because the CFPB’s structure departed so heavily from historical practice on how independent agencies are structured, the CFPB was unconstitutional because it lacked the critical oversight needed to protect individual liberty.[29]


The en banc review by the D.C. Circuit overturned the earlier decision and held 7-3 that the CFPB’s structure was, in fact, constitutional.

The plurality found that the for-cause provision permitting the President to only remove the CFPB director for “inefficiency, neglect of duty, or malfeasance in office” was consistent with precedent and history.[30] Congress has applied, and the courts have accepted, similar removal provisions for the Federal Trade Commission and the SEC.[31] In particular, the plurality found that Congress has always been alert to the dangers of political interference with financial affairs and a need existed to give independence to federal agencies that regulated financial markets.[32]

PHH argued that the CFPB director’s five-year term violated Article II because it would deprive some Presidents from ever having the opportunity to appoint a director.[33] However, the plurality compared the length of the single, five-year term of the CFPB director to the single, fourteen-year term of a Federal Reserve Board governor and found that the Constitution does not guarantee that a President will be able to appoint every head of every independent agency.[34]

The plurality also found that the CFPB’s funding structure through the Federal Reserve was a permissible exercise of Congress’ Article I powers and was completely unrelated to the President’s power.[35] The plurality also dismissed PHH’s argument that an agency led by a single-director, rather than a board, was unconstitutional.[36] The plurality stated that the President’s ability to perform his constitutional duty is unaffected by the CFPB’s single director.[37]

Overall, the en banc D.C. Circuit found that there was no “constitutional precedent, history, or principle to invalidate the CFPB’s independence.”[38] The D.C. Circuit went as far as saying that the agency was “without constitutional defect.”[39]


It is uncertain whether PHH will proceed with a petition for review by the Supreme Court. First, the en banc court remanded the imposed $109 million penalty for review back to the CFPB.[40] Second, the CFPB has a new director, Mick Mulvaney, who has been vehemently opposed to the agency and it is widely expected that he will temper enforcement actions and penalties.[41] PHH desperately fought to change the structure of the CFPB, but now, ironically, there is a new director of the agency who wants to eliminate the CFPB entirely. Therefore, it can hardly be unexpected that PHH may opt to discontinue its expensive litigation to change the structure of the CFPB. This means that the structure of the CFPB may not be resolved until a later date. Likely, it would take the appointment of a new director in five years with the motivation to levy another hefty penalty on an organization—who will subsequently use the PHH litigation as a springboard to challenge the constitutionality of the structure of the CFPB again.

Ultimately, the en banc panel’s 7-3 decision upholding the agency structure of the CFPB is persuasive and beneficial for consumers. The purpose of the CFPB is to protect ordinary citizens from unfair or deceptive practices.[42] That mission would be in jeopardy if the agency was subjected to the politics of the appropriations process or the if the director was not more detached from the President’s removal powers. The en banc panel’s decision protects that mission—for now.

  1. PHH Corp. v. CFPB, No. 15-1177, 2018 WL 627055 (D.C. Cir. Jan. 31, 2018) (en banc).
  2. A party has 90 days following a judgment by a U.S. Court of Appeals to petition for a writ of certiorari. R. of Supreme Ct. of the U.S. 13.1.
  3. See Renae Merle, The CFPB Now Has Two Acting Directors. And Nobody Knows Which One Should Lead the Federal Agency, Wash. Post (Nov. 24, 2017), (stating that Mick Mulvaney “once called [the CFPB] a ‘joke’ and said he wished [it] didn’t exist”).
  4. Crash Course: The Origins of the Financial Crisis, Economist (Sept. 7, 2013),
  5. Id.
  6. See Elizabeth Warren, Unsafe at Any Rate, Democracy (Summer 2007), (calling for the creation of a “Financial Product Safety Commission”).
  7. 12 U.S.C. § 5491(a).
  8. Adam J. Levitin, The Consumer Financial Protection Bureau: An Introduction, 32 Rev. Banking & Fin. L. 321, 339 (2013).
  9. 12 U.S.C. § 5291(b).
  10. Levitin, supra note 8, at 340.
  11. Id.
  12. 12 U.S.C. § 5491(b)(2).
  13. Id. at § 5491(c)(1).
  14. Id. at § 5491(c)(3).
  15. CFPB Takes Action Against PHH Corporation for Mortgage Insurance Kickbacks, CFPB (Jan. 29, 2014),
  16. “Kickback” Investopedia,
  17. CFPB Takes Action Against PHH Corporation for Mortgage Insurance Kickbacks, supra note 15.
  18. PHH Corp. v. CFPB, No. 15-1177, 2018 WL 627055 at *5 (D.C. Cir. Jan. 31, 2018) (en banc).
  19. Id.
  20. Id.; see also CFPB Director Cordray Issues Decision in PHH Administrative Enforcement Action, CFPB (June 4, 2015),
  21. PHH Corp. v. CFPB, 839 F.3d 1, 12 (D.C. Cir. 2016).
  22. U.S. Const. art. II, § 3.
  23. PHH Corp. v. CFPB, 839 F.3d 1, 12 (D.C. Cir. 2016).
  24. Id. at 16.
  25. Id. at 13.
  26. Id. at 15.
  27. Id. (emphasis added).
  28. Id. at 7.
  29. Id. at 36.
  30. PHH Corp. v. CFPB, 881 F.3d 75, 2018 WL 627055 at *6 (D.C. Cir. Jan. 31, 2018) (en banc).
  31. Id. at *7.
  32. Id. at *12.
  33. Id. at *19.
  34. Id.
  35. Id. at *15–16.
  36. Id. at *17.
  37. Id.
  38. Id. at *20.
  39. Id.
  40. Id. at *6; see also D.C. Circuit Court of Appeals Rules in PHH v. CFPB, ACA Int’l (Feb. 1, 2018), (stating that the D.C. Circuit “tossed out” the $109 million penalty imposed on PHH).
  41. Jordan Weissman, Mick Mulvaney Wanted to Eliminate the Consumer Financial Protection Bureau. Now Trump’s Putting Him in Charge of It., Slate (Nov. 16, 2017),
  42. See The Bureau, CFPB, (“We protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law. We arm people with the information, steps, and tools that they need to make smart financial decisions.”) (last visited Mar. 5, 2018).