U.S. Supreme Court Holds CFPB Single Director Model Unconstitutional, Upholds Agency's Powers

June 30, 2020

The Supreme Court on June 29 ruled the Consumer Financial Protection Bureau (CFPB) is constitutional, but that its director could be removed by the president of the United States "at will."

The decision by Chief Justice John Roberts in Seila Law LLC v. Consumer Financial Protection Bureau found that that the CFPB's leadership by a sole director who was removable "only for cause" violated the separation of powers rule under the U.S. Constitution. In the end, the Roberts decided that the "for cause" requirement could be excised and the CFPB could continue to operate.

"The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will," Roberts wrote in his majority 5-4 decision. The ruling consists of multiple opinions, running 105 pages in total. In addition to the majority opinion authored by Chief Justice Roberts, there is a dissent written by Justice Kagan.

The court's ruling leaves open the possibility (and potentially the invitation) to convert the CFPB to a multi-member bipartisan commission like the Federal Trade Commission. ALTA has supported this commission proposal for years.

“With this particular case settled, we hope the Bureau can focus on its core mission of protecting consumers from unfair, deceptive or abusive practices,” said Diane Tomb, ALTA’s chief executive officer. “For several years, ALTA has endorsed a multi-member commission as the most effective form of governance for the Bureau, and hope Congress will ultimately take that step. ALTA strongly supports S. 3990, the Financial Product Safety Commission Act of 2020. This legislation (sponsored by Sen. Deb Fischer) would ensure the bureau’s political independence by replacing the single director structure with a five-person, bipartisan commission, as originally intended by the U.S. House of Representatives when it first passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. In addition to safeguarding the CFPB from executive and political interference of any kind, a Senate confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation and enforcement by encouraging input from all stakeholders.”

Meanwhile, upholding the rest of the CFPB's powers and actions is noteworthy. The industry has spent hundreds of millions of dollars on building compliance regimes for CFPB rules like TRID. Today's ruling ensures they won't just force the industry to spend hundreds of millions more reverting back to the pre-2010 rules.

As originally laid out by Dodd-Frank, the CFPB is headed by a single director, who is appointed by the president and confirmed by the Senate to serve a five-year term in office. The director can be removed by the president only for "inefficiency, neglect of duty, or malfeasance in office." Since its inception, legal scholars have argued this structure violates the separation of powers. Defenders of the CFPB argued that the court upheld similar removal provisions in cases involving the FTC and the office of special counsel. Further, there are four other agencies also headed by a single director, including the Comptroller of the Currency, the Office of Independent Counsel, the Social Security Administration and the Federal Housing Finance Agency, which this ruling could affect.

This case started when the CFPB issued a Civil Investigative Demand (CID) to Seila Law asking for information and documents related to accusations that they were offering debt relief service in violation of federal consumer law. Seila Law refused to fully comply with the CFPB's requests and ultimately filed suit alleging the CFPB did not have authority to issue the CID because of its unconstitutional structure. Seila ultimately argued the constitutional issues were so pervasive that the entire CFPB should be struck down and its statutory enforcement authorities should revert to the previous agencies.

As Chief Justice Roberts writes, “Article II provides that ‘[t]he executive Power shall be vested in a President,’ who must ‘take Care that the Laws be faithfully executed.’ Art. II, §1, cl. 1; id., §3. The entire ‘executive Power’ belongs to the President alone. But because it would be ‘impossib[le]’ for ‘one man’ to ‘perform all the great business of the State,’ the Constitution assumes that lesser executive officers will ‘assist the supreme Magistrate in discharging the duties of his trust.’ 30 Writings of George Washington 334 (J. Fitzpatrick ed. 1939)." The decision then looks through the precedent noting that the Constitution has a strong bias toward the President have complete control over agency heads. The two exceptions to this precedent involved the FTC in Humphrey’s Executor and the Office of Independent Counsel in Morrison. Ultimately, Chief Justice Roberts chose not to overrule those precedents but also not to extend them beyond the facts of those cases. He wrote:

The resulting constitutional strategy is straightforward: divide power everywhere except for the Presidency, and render the President directly accountable to the people through regular elections. In that scheme, individual executive officials will still wield significant authority, but that authority remains subject to the ongoing supervision and control of the elected President. Through the President’s oversight, “the chain of dependence [is] preserved,” so that “the lowest officers, the middle grade, and the highest” all “depend, as they ought, on the President, and the President on the community.” 1 Annals of Cong. 499 (J. Madison). The CFPB’s single-Director structure contravenes this carefully calibrated system by vesting significant governmental power in the hands of a single individual accountable to no one. The Director is neither elected by the people nor meaningfully controlled (through the threat of removal) by someone who is. The Director does not even depend on Congress for annual appropriations. See The Federalist No. 58, at 394 (J. Madison) (describing the “power over the purse” as the “most compleat and effectual weapon” in representing the interests of the people). Yet the Director may unilaterally, without meaningful supervision, issue final regulations, oversee adjudications, set enforcement priorities, initiate prosecutions, and determine what penalties to impose on private parties. With no colleagues to persuade, and no boss or electorate looking over her shoulder, the Director may dictate and enforce policy for a vital segment of the economy affecting millions of Americans. The CFPB Director’s insulation from removal by an accountable President is enough to render the agency’s structure unconstitutional.

In looking at whether to overturn the entire agency, the court remanded the case back to the lower court to determine if the CID was ratified by a director that was removable at will by the president. In this case, the CID was confirmed by two acting directors of the CFPB, Mick Mulvaney and current Director Kathy Kraninger, both of whom at a time were removable at will by the president. In not overturning the whole agency the court said:

The provisions of the Dodd-Frank Act bearing on the CFPB’s structure and duties remain fully operative without the offending tenure restriction. Those provisions are capable of functioning independently, and there is nothing in the text or history of the Dodd-Frank Act that demonstrates Congress would have preferred no CFPB to a CFPB supervised by the President. Quite the opposite. Unlike the Sarbanes-Oxley Act at issue in Free Enterprise Fund, the Dodd-Frank Act contains an express severability clause. There is no need to wonder what Congress would have wanted if “any provision of this Act” is “held to be unconstitutional” because it has told us: “the remainder of this Act” should “not be affected.” 12 U. S. C. §5302.

In the dissent, Justice Kagan argues that the framers gave Congress and the president broad discretion to establish agencies, and courts should not replace Congress’ will with their will of justices.

Contact ALTA at 202-296-3671 or communications@alta.org.