The Supreme Court on Friday announced that it will hear a case challenging the constitutionality of the Consumer Financial Protection Bureau, a regulatory agency established in the wake of the 2008 financial crisis.
The case was brought by Seila Law, a California-based law firm, which alleges that the structure of the agency grants too much power to its director, in violation of the Constitution’s separation of powers.
Unlike the heads of many other federal agencies, the director of the CFPB may only be removed by the president "for inefficiency, neglect of duty, or malfeasance in office." Given the CFPB’s broad law enforcement powers, that independence is unconstitutional, Seila Law has argued in court papers.
In an order posted Friday, the justices asked both sides to address whether the bureau can remain even if its structure is found to be unconstitutional.
A decision in the case is likely by the end of June, meaning that the fate of the regulator will be announced in the middle of the 2020 presidential campaign. That could be particularly significant for Sen. Elizabeth Warren, a consumer advocate whose role in creating the agency has formed a central pillar of her presidential bid.
It is possible that a ruling against the CFPB would maintain the agency but only on the condition that its director, who serves a five-year term, can be removed at the pleasure of the president. If Trump loses his reelection bid in 2020, that would mean that a Democrat will be able to replace Trump’s current appointee, CFPB director Kathy Kraninger, when they take office.
To date, the CFPB has survived multiple court challenges.
The federal appeals court in Washington upheld the agency last year on the basis that the Supreme Court, more than 80 years ago, signed off on the Federal Trade Commission, a similarly structured regulator, in the 1935 case Humphrey’s Executor. In May, the CFPB defeated Seila Law before a panel of the 9th U.S. Circuit Court of Appeals.
"Seila Law contends that an agency with the CFPB’s broad law-enforcement powers may not be headed by a single Director removable by the President only for cause. That argument is not without force," Circuit Judge Paul Watford wrote for the court.
But, he said, given Humphrey’s Executor and a later case which reaffirmed the ruling, the CFPB is constitutional.
"The Supreme Court is of course free to revisit those precedents, but we are not," he wrote.
Under President Donald Trump, the CFPB has already dramatically pared back its role as a financial watchdog. A report published by the Consumer Federation of America earlier this year found that the agency had dropped enforcement activity 80% compared with its peak in 2015. Average monetary relief, the report found, was down 96%.
Given the makeup of the Supreme Court, it’s likely that the agency’s structure could be struck down.
Justice Brett Kavanaugh, whose confirmation last year delivered conservatives a reliable majority, made clear in a dissent from the Washington appeals court decision upholding the bureau that he believes the structure of the CFPB is impermissible.
"Indeed, other than the President, the Director of the CFPB is the single most powerful official in the entire U.S. Government, at least when measured in terms of unilateral power," Kavanaugh wrote at the time. "That is not an overstatement."
Notably, Kavanaugh did write in that dissent that he believed the director’s independence could be limited while leaving the rest of the bureau intact, "so that the Director of the CFPB is supervised, directed, and removable at will by the President."
The case is Seila Law v. Consumer Financial Protection Bureau, No. 19-7
The case
In september, Kraninger assumed leadership of the CFPB in late 2018 after facing heavy scrutiny from consumer advocates including Sen. Elizabeth Warren, a Democratic presidential contender. Kraninger said during her nomination process that she believed "the ultimate question of the constitutionality of the Bureau’s structure is one for Congress or the courts to resolve."
The case the brief was filed in connection with is Seila Law v. CFPB. Seila Law, a California law firm, is challenging the single-director structure of the bureau. Unlike the heads of some other agencies, the director of the CFPB can be removed by the president only for cause.
In its brief with the Supreme Court, the Justice Department urged the justices to take up the case and find the structure of the agency unconstitutional. But, it said, it would be possible to limit the power of the agency’s director without scrapping it altogether.
Kraninger wrote in her letter to lawmakers that even if the court finds that the structure of the agency is unconstitutional, it should remain "fully operative."
"My determination that the for-cause removal provision is unconstitutional does not affect my commitment to fulfilling the Bureau’s statutory responsibilities," she added.
Though the Justice Department had previously said it determined the CFPB to be unconstitutional, this is the first time it has asked the top court to review the matter in a particular case.
The CFPB regulates financial companies such as banks and credit unions. As of 2017, the bureau said it had returned $12 billion in financial relief to consumers. Its enforcement actions have been curtailed under President Donald Trump.
Warren, who originally proposed the CFPB, did not immediately respond to a request for comment.
(Published by Reuters 20, 2019)
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