RSSThis summer, the Consumer Financial Protection Bureau posted a job opening for an administrative law judge (ALJ). The posting, on the federal government’s jobs website here, was a curious one. The Dodd-Frank Act that created the CFPB specifically mentions that the CFPB would have access to ALJs employed by the Securities and Exchange Commission (SEC). Since its inception, the CFPB has had an agreement in place for use of SEC judges.
Administrative law judges hear claims in regulatory matters governed by the Administrative Law Act of 1946 (ALA). That law sought to set up fair and consistent procedures for administrative agencies like the CFPB that wield the combined powers of legislation (through rule-making), execution and adjudication. Currently, there are approximately 20 statutory authorities administered by the CFPB that require ALA hearings. Some examples: the Equal Credit Opportunity Act and the Home Ownership and Equity Protection Act.
The agreement with the SEC was terminated at the end of the summer at about the same time that the ALJ listing appeared. Also occurring at the same time was a federal court ruling that was adverse to the SEC’s use of ALJs. The court, in Mills v. SEC, issued a preliminary injunction halting an SEC enforcement action. The SEC has come under increasing criticism for its growing use of ALJs, and for a perceived bias in ALJ decisions in favor of the SEC. The court cited both, ruling that an ALJ’s powers made them “inferior officers” under Article III of the Constitution, rather than just “employees” as the SEC argued. As “inferior officers,” the court concluded that the ALJs were subject to the Appointments Clause, which vests the power to appoint all “inferior officers” in “the President alone, in the Courts of Law, or in the Heads of Departments.” Since the ALJ in Mills was hired by an SEC office and not appointed by an SEC commissioner, the court ruled that the ALJ’s appointment was “likely unconstitutional.”
The CFPB has similar authority, and although the ALJ position is expected to be filled soon, it could face similar scrutiny eventually. The CFPB’s administrative rules are modeled on the SEC’s rules, and any CFPB ALJs would have identical powers which might also make them “inferior officers.” As such, the ALJ would need to be appointed according to the Appointments Clause. However, because of the CFPB’s relation to the Federal Reserve, the CFPB Director’s status as a “Department” head who can appoint ALJs might be called into question.
