The Justice Department will not support the Consumer Financial Protection Bureau in a monumental court battle over whether the structure of the federal watchdog is unconstitutional, according to court documents filed Friday.
Under the Dodd-Frank Act that created the agency, the director can be removed only for cause — setting a high bar for a president who wants to put new leadership in place. That approach was called into question last fall when the U.S. Court of Appeals for the District of Columbia Circuit ruled in support of PHH, a mortgage lender suing the CFPB to challenge an enforcement action.
In October, a three-judge panel ruled that the agency should be restructured so that the president can have the ability to fire the director at will.
That ruling was vacated in February when the court granted the CFPB’s request to rehear the case, this time with the full panel of judges. Oral arguments for the case are scheduled for May 24.
In Friday’s amicus brief, the Justice Department compared the regulator to other independent agencies that are run by a commission with multiple members and concluded that the design of the CFPB may violate the Constitution because it is run by a single director that the president cannot remove at will. “There is a greater risk that an ‘independent’ agency headed by a single person will engage in extreme departures from the President’s executive policy,” the brief reads.
The CFPB declined to comment. The agency has until March 31 to file another brief in the case.
The Justice Department’s move sets the stage for a rare showdown between two federal agencies in court. While the amicus brief does not make the Justice Department an official party in the case, it shows that the department is actively opposing the CFPB and signals that it may not defend the current structure of the agency if the battle reaches the Supreme Court, legal experts said.
“It’s certainly not good for the CFPB,” said Michael Landis, litigation director for U.S. Public Interest Research Group, a consumer advocacy group. “The D.C. Circuit will put weight on the views of the Justice Department.”
The brief marks a reversal for the Justice Department, which filed a friend-of-the-court brief in support of the CFPB during the final days of the Obama administration, asking the court to rehear the case. At the time, the department stopped short of taking a stance on whether it is constitutional to have a single director who can be removed by the president only for cause.
The filing deals another blow to the nearly six-year-old agency that has come under increased attack since the presidential election from Republicans and financial industry trade groups who hope President Trump will support their efforts to weaken the regulator.
The case may become more complicated as it progresses through the court system. While the CFPB can defend itself before the D.C. Circuit court, the agency would need to be represented by the Justice Department if it wants to take the challenge up to the Supreme Court, Landis said.
Under that scenario, the CFPB would need another group to join the case on its behalf to be able to argue against PHH before the Supreme Court. Some Democrats and consumer advocates tried to fill that role when they requested to intervene in the case earlier this year, but their efforts were rejected by the court.
Some supporters of the CFPB said the director should be shielded from shifts in presidential administrations to provide a more consistent approach to regulation. “It is independent from the political process, just like the other bank and financial regulators,” said Brian Simmonds Marshall, policy counsel for Americans for Financial Reform, a coalition that fights for civil rights and labor issues.
Still, some supporters of the CFPB downplayed the potential effect of the brief, saying that the court may view it as a political move and put more emphasis on the law.