The Long Path to Director Cordray’s Removal

Richard Cordray, Donald Trump, CFPB, D.C. Circuit, Supreme Court
Donald Trump by Gage Skidmore CC BY 2.0 https://www.flickr.com/photos/gageskidmore/5440002785) and Attorney General Richard Cordray Announces Candidacy for Re-election by ProgressOhio CC BY 2.0 https://www.flickr.com/photos/progressohio/4363572640/in/photostream/)

trumpcordray2I have been vigorously recommending that President-elect Trump replace Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB). I still think that replacing Director Cordray is necessary for reasons I’ve enumerated elsewhere; but on Friday the CFPB filed a petition for a rehearing of a recent and crucial case. So it’s time to talk about the legal hurdles President Trump will have to clear before he can install a new director. It is possible that there will be a long road ahead.

To understand these hurdles, we have to go back to the CFPB’s founding document, the Dodd-Frank Act. In Dodd-Frank, the Bureau was established as an independent agency. That means that although the President appoints the Director, and although that appointment must be confirmed by the Senate, the President’s ability to remove the director is very limited. Under Dodd-Frank, President Trump would be able to remove Director Cordray only for cause — e.g., for neglecting his duty or actual bad behavior. He would not be able to remove him because the two disagreed on policy or the direction the agency should take.

The rules for an independent agency can be contrasted with those for an executive agency, such as the Department of Justice or the Department of the Treasury. The Attorney General, for example, can be removed by the President at will. And there have been examples in the past when a cabinet member has resigned over policy disagreements with the sitting President.

The CFPB is not the only independent government agency. But it is unusual in that it is headed by a single individual. The Securities and Exchange Commission (SEC), for example, is an independent agency. Its Commissioners can be removed by the President only for cause. The Chair of that agency, however, serves as Chair at the President’s will. If President Obama wanted to remove the current Chair Mary Jo White, he could remove her from her position as Chair but could not prevent her continuing as a member of the Commission for the duration of her term.

All of this changed, however, last month when a federal appeals court ruled the CFPB’s structure unconstitutional. In that case, the court found that, unlike a multi-seat commission where commissioners must work together, there is no check on the Director’s power. The court ruled that, to cure the constitutional defect, the Director must serve at the will of the President. That is, the court said that the President can fire the Director for any reason at all, including a disagreement on policy.

It is customary for officials who serve at the pleasure of the President to step down when a new President is elected. For example, Chair White has announced she will step down from the SEC at the end of President Obama’s term.

But Director Cordray isn’t stepping down. Instead he’s doubling down on the law suit. Here things get technical, so bear with me. In a federal appeals court, a case is first heard by a panel of three judges. They confer and issue an opinion. This opinion is binding, but can be appealed. The first step in that process is for the losing party to seek what is called a rehearing en banc. That is when all of the judges on the court — in this court, the D.C. Circuit, there are 11 active judges — hear the case together and then issue an opinion that supersedes the opinion already issued by the three-judge panel. From there, the losing party can seek to have the case heard by the Supreme Court. No one has a right to either a rehearing en banc or a hearing before the Supreme Court; the judges and justices have discretion to take what cases they want.

Given the importance of the CFPB’s case, it is likely that Director Cordray’s petition will be granted. Hearing the case en banc, the D.C. Circuit may decide that it doesn’t have to decide whether the CFPB is unconstitutional. The judiciary typically does not address constitutional questions unless it has to. The opinion issued by the three-judge panel was not unanimous; one judge dissented, saying that the CFPB was wrong in how it had handled the specific case, and that since the court could find against the CFPB on those grounds, it should not consider the question of the agency’s structure. It is possible that the entire court would agree.

As for what might happen if the case reaches the Supreme Court, that’s still anyone’s guess. It will depend on who’s sitting on the bench at that time.

What can be done, then? There are several options. First, President Trump could decide to fire Director Cordray for cause. Under Dodd-Frank, the President can remove the Director “for inefficiency, neglect of duty, or malfeasance in office.” It can be argued (and I have myself argued) that Director Cordray has violated due process in running the agency and has even been abusive in his use of the considerable power he holds. It would be a bold move on the part of the President to remove Director Cordray for cause, but if any President were to make bold moves, it would be this one. Second, Congress could pass legislation to reform the Bureau. That would most likely take the form of changing it into a commission with presumably a structure similar to the SEC’s: a five-member seat, with a chair serving at the pleasure of the President, and with a requirement that no more than three seats be filled by members of the same party. Third, President Trump could wait for Director Cordray’s term to expire, which will happen in July 2018.

It would be nice to think there would be a new Director at the CFPB come 2017, but in fact there is a long road ahead. Director Cordray’s announcement Friday just confirmed it.

  • Ray Lopez

    I thought this was an article written by a journalist until I saw the "About" footnote. The analysis is incompetent since it does not discuss the PHH case adequately, which simply allows a constitutional remedy in the form of multiple commissioners rather than a single one as now. So, all the CFPB has to do is go to Congress and ask it have multiple commissioners. Also it's unlikely anybody but the author cares about payday loans and usurious rates. Lower income people that do care don't vote (and anyway use work-arounds like pawn shops and loan sharks), and the middle and upper classes, which do vote and control the gatekeepers, could care less. Hence this is a tempest in a teapot for all but the author, who apparently has some nexus with non-traditional lending ("CrowdCheck"). All in all, a hit piece advocacy, disguised as rolling back the state in the guise of a Cato hot button issue. Short of bring back Procedural Due Process and Lochner era caselaw, I don't see this case being that significant. And I suspect most people would agree.

  • Tom

    Time to end the Consumer Financial Protection Bureau and Dodd-Frank. Usury laws are a bygone of a dark and distant past. Dodd-Frank is an abomination that has sabotaged U.S. economic growth. New bank formation is near zero since Dodd-Frank. It is time to end not only the director but the entire CFPB and Dodd-Frank.