PHH Corp. v. Consumer Financial Protection Bureau
Decided January 31, 2018 (2018)
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Rule of Law:
A federal statute providing the director of an independent agency with a fixed term and protecting the director from at-will presidential removal by requiring cause (such as 'inefficiency, neglect of duty, or malfeasance in office') does not violate Article II's separation of powers, even when the agency is headed by a single director rather than a multi-member commission.
Facts:
- The Real Estate Settlement Procedures Act of 1974 (RESPA) prohibits kickbacks or referral fees for real estate settlement services.
- PHH Corporation, a mortgage lender, engaged in a 'captive reinsurance' arrangement.
- In this arrangement, PHH referred borrowers to specific mortgage insurers.
- These mortgage insurers then purchased reinsurance from Atrium, a subsidiary owned by PHH, thereby transferring a portion of the borrower's premiums back to PHH.
- The Consumer Financial Protection Bureau (CFPB), which administers RESPA, came to view this practice as an illegal kickback scheme.
Procedural Posture:
- The CFPB initiated an administrative enforcement action against PHH Corporation and its affiliates, filing a Notice of Charges.
- An Administrative Law Judge (ALJ) issued a recommended decision finding that PHH had violated RESPA and should be ordered to disgorge approximately $6.4 million.
- Upon administrative appeal, the Director of the CFPB issued a final decision affirming the RESPA violation but reinterpreting the law and increasing the disgorgement order to $109 million.
- PHH filed a petition for review of the Director's final order in the U.S. Court of Appeals for the D.C. Circuit.
- A three-judge panel of the D.C. Circuit held that the CFPB’s structure was unconstitutional because its single director was protected by for-cause removal, and it vacated the Director's order.
- The D.C. Circuit granted the CFPB's petition for rehearing en banc, which vacated the three-judge panel's decision.
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Issue:
Does the provision of the Dodd-Frank Act that allows the President to remove the Director of the Consumer Financial Protection Bureau only for 'inefficiency, neglect of duty, or malfeasance in office' violate Article II of the Constitution?
Opinions:
Majority - Pillard, Circuit Judge
No. The for-cause removal protection for the single Director of the Consumer Financial Protection Bureau is consistent with Article II. The provision is wholly ordinary, using the same language sustained for the multi-member Federal Trade Commission in Humphrey’s Executor v. United States. The CFPB's function as a financial regulator falls squarely within the category of agencies that precedent and history have permitted to have a degree of independence from direct presidential control to ensure stability and prevent political manipulation. The argument that a single-director structure is constitutionally distinct from a multi-member commission finds no support in precedent, as the core inquiry is whether the restriction impermissibly impedes the President’s ability to 'take Care that the Laws be faithfully executed,' a standard which this mild constraint does not violate.
Dissenting - Kavanaugh, Circuit Judge
Yes. The structure of the CFPB violates Article II because it consolidates massive executive power in a single, unaccountable Director who is not checked by the President or by fellow commissioners. This structure is historically unprecedented; every other independent agency exercising substantial executive authority has been a multi-member body, which provides internal checks that protect individual liberty. The single-Director structure also diminishes presidential authority more than traditional independent agencies, as a new President may be stuck for years with a Director from a prior administration, unlike at multi-member agencies where the President can typically designate a new chair. The combination of vast power concentrated in one person who is unaccountable to the President is a dangerous departure from constitutional tradition.
Dissenting - Henderson, Circuit Judge
Yes. The CFPB's unique combination of features—a single director, for-cause removal protection, and funding outside the congressional appropriations process—renders it an agency accountable to neither of the elected branches, which violates Article II and the principle of government by consent. The exception carved out in Humphrey’s Executor does not apply because the CFPB is not a deliberative, non-partisan 'body of experts' like the FTC. Because the Director's independence is essential to the legislative design, the for-cause provision is not severable, and the entire title of the Dodd-Frank Act creating the CFPB should be invalidated.
Analysis:
This decision validates a significant innovation in the administrative state: the single-director independent agency. By rejecting the argument that the multi-member commission is a constitutional prerequisite for independence, the court affirmed Congress's flexibility in designing regulatory bodies. The ruling deepens a circuit split on the structure of independent agencies and presidential power, making it a prime candidate for Supreme Court review. Its reasoning, if upheld, could empower Congress to create other powerful, single-headed independent agencies, while a reversal could call into question the structure of numerous other agencies.
