Join us.

We’re working to create a just society and preserve a healthy environment for future generations. Donate today to help.


The Threat to Individual Liberty in Judge Kavanaugh’s CFPB Opinion

Public Protections

This post is part of a series on Judge Brett Kavanaugh's nomination to the U.S. Supreme Court.

"This is a case about executive power and individual liberty." That is how Judge Brett Kavanaugh started the opinion he wrote for a three-judge panel of the D.C. Circuit Court of Appeals holding that the structure of the Consumer Financial Protection Bureau (CFPB) was unconstitutional. That opinion is one among many that reflects Supreme Court nominee Kavanaugh's belief that administrative agencies are in a constitutionally precarious position that demands strong judicial supervision.

Many believe that, as a result, a Justice Kavanaugh would be a reliable vote in favor of industry and against administrative agencies and the environmental, health, safety, and consumer protections they enforce. Others claim he would be "evenhanded" in cases challenging agency action and simply do his job as a judge by insisting that agencies stay within the bounds of their constitutional authority. That debate is an important one that will undoubtedly be among the main topics that members of the Senate Judiciary Committee focus on during his confirmation hearings. But there's another important question that Kavanaugh's CFPB opinion raises about his ability to serve Americans well as the next Supreme Court Justice: his understanding of "individual liberty" and the role of agencies such as the CFPB in ensuring it.

Earlier this year, the full D.C. Circuit reversed Kavanaugh's opinion holding that the structure of the CFPB is unconstitutional, and Kavanaugh wrote a dissenting opinion trenchantly reasserting his analysis in the panel decision. He opened his dissent with the same resounding statement that he opened the panel opinion with: "This is a case about executive power and individual liberty." The case – PHH Corp. v. CFPB – involved a challenge by a mortgage company to a $109 million fine that the CFPB imposed after an administrative law judge found that PHH had cheated borrowers by engaging in a fraudulent kickback scheme in violation of the 1974 Real Estate Settlement Procedures Act (RESPA), which protects consumers from fraudulent and deceptive practices by home loan servicing companies such as PHH. The $109 million figure is the amount that PHH had gained as a result of its illegal kickback scheme.

Congress created the CFPB in 2010 in response to the 2008 financial crisis, and charged it with overseeing the business practices of mortgage companies and other private "nonbank" financial actors that were previously "largely unregulated," including credit card companies, payday lenders, and student loan companies. Although federal consumer protection laws, such as RESPA, prohibited these companies from engaging in deceptive and fraudulent tactics in the sale and marketing of their financial products, the protections remained severely underenforced because no one agency was charged with policing them, and because those agencies with enforcement authority – including, for example, the Federal Reserve, the Federal Trade Commission, and the Federal Deposit Insurance Corporation – were already tasked with very broad statutory missions.

The 2008 financial crisis brought into sharp relief that this regulatory gap was endangering Americans who relied on mortgages, student loans, and payday loans to have places to live, to get the education they needed to secure jobs that paid decent wages, and to purchase basic necessities. This threat to the individual liberty of millions is what Congress sought to address by creating the CFPB and giving it the specific assignment of overseeing financial product companies. But that is not the threat to individual liberty that Kavanaugh said PHH was about. In fact, his opinions in the case indicate that he does not even understand these sorts of protections to be the necessary part of individual liberty that they are. Rather, the only "liberty" that he was concerned with was that of PHH and other financial product companies when subjected to prosecution for violating laws securing these protections.

Kavanaugh is certainly correct that giving the CFPB – or any other agency – the power to enforce rules presents a risk to the liberty of those, such as PHH, whose conduct is governed by those rules, if that power is abused. Such is ever the case with any agency with regulatory powers. He is also right that one of the principal ways the Constitution protects against such abuses is by separating the powers of the three co-equal branches of the federal government. But Kavanaugh utterly fails to account for, or even acknowledge, the threat to the individual liberty of millions of Americans that Congress sought to mitigate by creating the CFPB. That failure severely weakens his conclusion that the structure of the agency violated the "separation of powers" doctrine of the Constitution. More importantly, it portends that he would bring an incredibly cramped view of individual liberty to the Supreme Court if confirmed as a Justice, a view contrary to reason, reality, and justice. 

In a now-famous concurring opinion in the 1952 Supreme Court case, Youngstown Sheet & Tube Co. v. Sawyer, Justice Robert Jackson set out what has become the accepted framework for analyzing whether presidential action unconstitutionally encroaches on congressional power in violation of the Constitution's "separation of powers" doctrine. Jackson based the framework on the premise that judges must be particularly careful when adjudicating separation-of-powers issues, as they are members of the third branch of the federal government exercising their own power by adjudicating the case. As Jackson explained: "The actual art of governing under our Constitution does not and cannot conform to judicial definitions of the power of any of its branches based on isolated clauses or even single Articles torn from context. While the Constitution diffuses power the better to secure liberty, it also contemplates that practice will integrate the dispersed powers into a workable government." That is, there is significant constitutional leeway to allow the political branches to make policy, which they, unlike the federal judiciary, were elected to do.

The Supreme Court established its rule for analyzing whether congressional action – such as the creation of the CFPB – unconstitutionally intrudes upon executive power in the more recent case of Morrison v. Olson: whether the legislation "unduly interferes with the role of the Executive Branch." The Morrison rule is based on the same premise as the Youngstown framework: The judiciary must proceed cautiously when analyzing whether one of the political branches has crossed the constitutional line in exercising power, as the Constitution does not clearly demarcate the boundaries in order to allow for a "workable government."

Like PHH, Morrison involved a challenge to an agency – the Office of the Independent Counsel – on the ground that the president did not have sufficient control over the agency because it had a significant degree of investigative independence and its head could be removed only "for cause." Also like PHH, Morrison involved a challenge to an agency that Congress created in response to a national crisis: Watergate. That crisis made clear that the executive branch could not police itself, and so Congress created an agency designed to hold high executive branch officials accountable for misconduct.

Similarly, the 2008 financial crisis made clear that the dispersal of power among various agencies to enforce laws protecting consumers against misconduct of mortgage, education loan, and other financial product companies was ineffective.  So, Congress created the CFPB and transferred to it oversight of those companies' compliance with our consumer protection laws. Because of the political and economic power of the financial product industry, Congress made the CFPB an "independent" agency, which means that, unlike executive agencies, whose heads can be removed by the president for any reason or no reason at all, the head of the CFPB can be removed only "for cause." 

The CFPB is among several independent agencies, including the Federal Trade Commission, the Consumer Product Safety Commission, the Federal Reserve, and the Securities and Exchange Commission. PHH argued that the CFPB crosses the constitutional line, however, because, unlike all these agencies, its head is a single director, rather than a multi-member commission. Kavanaugh agreed but neither applied the Morrison rule in reaching that conclusion nor mentioned the "workable government" principle that has long driven the Supreme Court's separation-of-powers analysis. That is largely because Kavanaugh's ideas about the administrative state and the nature of executive power are not amenable to that principle. It is also for a less apparent, but no less important and revealing reason: his failure to acknowledge the individual liberty of millions of Americans that Congress designed the CFPB to protect. 

Kavanaugh's myopic concern with the liberty of PHH as a result of CFPB's enforcement action made his analysis amenable to the much more simplistic separation-of-powers analysis that Justice Jackson rejected in Youngstown. Kavanaugh either deliberately ignored or simply failed to recognize the arguably much greater threat to individual liberty that motivated Congress's design of the CFPB. Either way, it's a strong indication that he will present a significant threat to individual liberty as a Supreme Court Justice, and not just in administrative law cases.

Public Protections

Subscribe to CPRBlog Digests

Subscribe to CPRBlog Digests to get more posts like this one delivered to your inbox.