Theodore B. Olson, the attorney representing PHH, argued that the CFPB and its director have more sway than any other agency, in part because the president has to meet a high bar before being able to remove the director.
The agency is “completely independent of the president and completely unaccountable,” Olson said.
The panel was meeting to reconsider an earlier decision made by a three-judge panel in October that said the structure of the CFPB is unconstitutional. The court ruled back then that the agency should be adjusted so that the director could be removed by the president at will, instead of only for cause.
The rehearing Wednesday included an additional perspective: that of the Justice Department which sided with PHH. Hashim Mooppan, an attorney representing the department, said the bureau’s director should be treated like members of the president’s Cabinet, who can be removed at will.
The CFPB’s attorney, Lawrence DeMille-Wagman, countered that Congress creates a variety of agencies with different structures. “No two agencies are exactly alike,” he said.
Some of the liberal judges on the panel said that the independent nature of the agency could help shield the regulator from political influence, a point also made by consumer groups who support the current structure.
Judge Cornelia Pillard, who was appointed by former president Barack Obama, compared the CFPB to other financial agencies run by directors that cannot be removed simply because the president disagrees with them. “It’s trying to avoid financial cronyism in exchange for faithful execution of the law,” Pillard said.
But Judge Brett Kavanaugh, who wrote the lead opinion on that earlier decision, said that the CFPB’s structure could also create scenarios where a president may not be able to replace the director of the agency until nearly the end of his term. For example, he pointed out that if Cordray stays until the end of his term in July 2018, the next president would not be able to replace the director until 2023, or three years into the presidency.
“Does the dead hand of the past president controlling the agency, does that matter?” he asked, adding that presidents have a greater chance of installing new leaders at agencies run by multiple commissioners.
The case is being debated at a time when Republicans have recently introduced several initiatives to revise the CFPB or slash its funding. Rep. Jeb Hensarling (R-Tex.) introduced a bill last month that would make the CFPB subject to the annual budget process. And the budget proposal introduced by the White House this week would essentially eliminate funding for the agency over the next 10 years.
The panel, which includes six judges appointed by Democratic presidents and five by Republican presidents, could reach a decision in the next several months.
Correction: A previous version of this story misidentified the court hearing oral arguments. It was the U.S. Court of Appeals for the District of Columbia Circuit, not the U.S. District Court of Appeals.