By Zoe Tillman, From The National Law Journal
A federal appeals panel in Washington on Tuesday appeared ready to disrupt the organizational structure of the Consumer Financial Protection Bureau, which vests power in the hands of a single director.
During arguments in the U.S. Court of Appeals for the D.C. Circuit in a challenge to the constitutionality of the consumer agency, the question appeared to be not whether the judges would alter the bureau’s structure, but rather how much.
The judges pressed the bureau’s lawyer to defend the novelty of the CFPB’s structure and why it didn’t violate separation of powers. A single director heads the bureau, and the president’s ability to remove the director is limited. It is “very dangerous in our system” to vest so much power in one person, Judge Brett Kavanaugh said during arguments.
The three-judge panel could declare the bureau’s structure unconstitutional in its entirety, or the judges could chip away at a smaller piece—by expanding the president’s authority to remove the director, for instance.
The judges and the lawyers arguing on Tuesday—Gibson, Dunn & Crutcher partner Ted Olson for the challengers, and bureau senior litigation counsel Lawrence DeMille-Wagman—did not address how a decision declaring the bureau unconstitutional would affect its previous actions. Olson argued that a ruling that only addressed future actions by the bureau would not be sufficient.
The court considered the case of PHH Corp., which provides home mortgage loans. PHH in 1994 created Atrium Insurance Co., which provided mortgage insurance providers with “reinsurance,” taking on some of the risk. PHH appealed a determination last year by CFPB Director Richard Cordray that the company engaged in a kickback scheme by referring customers only to mortgage insurers that had contracts for reinsurance from Atrium.
PHH challenged Cordray’s decision on the grounds that he wrongly interpreted the federal Real Estate Settlement Procedures Act and more broadly that the director’s decision was invalid because the bureau itself was unconstitutional.
Republicans have opposed the CFPB since its inception in 2010 as part of the Dodd-Frank financial reform package. Last week, the D.C. Circuit signaled its interest in confronting the constitutionality question. The court ordered the lawyers to come to arguments prepared to address whether other federal agencies had ever been headed by one person and, if such a structure violated separation of powers, what the court could do about it.
Kavanaugh has been itching to explore the constitutionality of a single-director agency for a while. During arguments in late 2014 in an unrelated case that also raised a constitutional challenge to the CFPB, Kavanaugh expressed interest in the single-head issue, even though the court was unlikely to reach it.
Could he have a “peek” at the merits?, the judge asked at the time. The panel revived the constitutionality issue in July, sending it back to a lower court, where it is still pending.
Olson argued in the latest case that the bureau’s structure violated separation of powers on several fronts. Beyond the vesting of authority in one director and the restrictions on the president’s ability to remove the director, Olson said that the agency didn’t have to answer to Congress, since its funding came from the Federal Reserve, and not a congressional appropriation.
“The president and the Congress have no power over this agency,” Olson said.
Olson said PHH wanted the court to at least vacate the director’s decision as a violation of the real estate settlement law. If he were in the judges’ shoes, Olson added, he’d be “tempted” to go even further and write an opinion that said Congress cannot create an agency with such broad authority.
Kavanaugh and Judge A. Raymond Randolph asked few questions of Olson. (Judge Karen LeCraft Henderson is also on the panel, but she was not in court for arguments. A court official said she would listen to a recording.) By contrast, DeMille-Wagman fielded a barrage of questions from the two judges, with Kavanaugh taking the lead.
DeMille-Wagman argued that Congress had discretion to create different structures for federal agencies. He said there had been agencies with a single head—the U.S. Social Security Administration, for one—but acknowledged there weren’t many. He said courts had upheld limitations on the president’s ability to remove agency heads, citing the Federal Trade Commission as an example.
If the panel does declare the bureau unconstitutional, the government could ask the full court to reconsider the case. Unlike the panel, which is made up of three Republican appointees, the full-court bench of active judges has a majority of Democratic appointees, including four confirmed under the Obama administration. That would remain true even without Chief Judge Merrick Garland, who is not participating in any cases while his nomination to the U.S. Supreme is pending.
IMAGE: Ted Olson. Photo: Diego M. Radzinschi/NLJ

For more on this story go to: http://www.nationallawjournal.com/id=1202754737873/DC-Circuit-Poised-to-Disrupt-Consumer-Protection-Bureau-Power-Structure#ixzz45ibh7alQ