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CFPB seeks to hire administrative law judge

Posted in CFPB Enforcement

The CFPB recently posted a job opening for an administrative law judge (ALJ).  According to the government jobs website, the position is closed which suggests that it has been filled.  A recent Politico article indicated that the CFPB posted the opening because it has ended its arrangement with the SEC to borrow ALJs.  (The Politico article also indicated that the CFPB has needed to borrow SEC judges for two administrative cases.)

The constitutionality of the SEC’s use of ALJs was recently called into question by an Atlanta federal court in Hill v. Securities Exchange Commission.  In Hill, the court issued a preliminarily injunction enjoining an SEC administrative proceeding, finding that the plaintiff had established a substantial likelihood of success on the merits of his claim that “the SEC has violated the Appointments Clause [of Article II of the U.S. Constitution].”

The court found that the ALJs’ powers made them “Inferior Officers” under Article II because they exercise “significant authority pursuant to the laws of the United States.”  Such authority included the power to issue subpoenas, make evidentiary rulings, and recommend decisions.  The court rejected the SEC’s argument that the ALJs were “mere employees” in part because they could not issue final orders.  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 Hill was hired by the SEC’s Office of Administrative Law Judges and not appointed by an SEC commissioner, the court ruled that the ALJ’s appointment was “likely unconstitutional.”

Assuming the CFPB now has its own ALJ, it might face a similar constitutional challenge.  Under the CFPB’s Rules of Practice for Adjudication Proceedings, which are modeled on the SEC’s Rules of Practice, the CFPB’s ALJs have powers similar to those of SEC ALJs, including the power to issue subpoenas, make evidentiary rulings, and recommend decisions.  Thus, a CFPB ALJ might also be deemed an “inferior officer” subject to the Appointments Clause.  As such, the ALJ would need to be appointed by for the President, a court, or the head of a “Department.”  However,  because the CFPB is housed within the Federal Reserve, Director Cordray’s status as a “Department” head who can appoint ALJs might be called into question.  See, e.g., Barnett, The Consumer Financial Protection Bureau’s Appointment with Trouble, American University Law Rev. (2011)