Supreme Court Rules CFPB Director Structure Unconstitutional, Keeps Agency Intact

The President of the United States has the authority to fire the CFPB director with or without cause, though the Bureau itself is remaining intact, the United States Supreme Court decided Monday.

Provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act requiring the single director the Consumer Financial Protection Bureau (CFPB) only be fired for instances of inefficiency, malfeasance or neglect is a violation of the Constitutional doctrine of the separation of powers, and the President of the United States has the authority to fire the CFPB director with or without cause, the Court decided.

However, the decision was limited in scope to the CFPB’s leadership structure only, stopping short of invalidating the agency’s entire existence as some challengers sought to do with the Court invoking “severability” — the ability to sever the director structure from the larger Constitutionality of the full Bureau, which itself remains intact.

The case, Seila Law LLC v. Consumer Financial Protection Bureau, asked the Court to decide on whether the vesting of substantial executive authority in the CFPB – which features a high degree of independence and is led by a single director who is difficult to remove from office – violates the Constitutional principle of the separation of powers between the branches of the federal government.

Decision, majority opinion

In a 5-4 decision along party lines, Chief Justice John Roberts wrote the majority opinion for the Court’s conservatives — Justices Clarence Thomas, Samuel Alito, Neil Gorsuch and Brett Kavanaugh — detailing that the inability of the executive branch to dismiss the CFPB Director under its current structure violates the separation of powers and that extending the president’s authority to dismiss the Bureau’s leader falls within previous precedents established by the Court.

While the Court has in the past also limited the executive branch’s power to remove the leadership of an agency if its leadership were vested in a group of people, the extension of that precedent to a Bureau led by a single director is a bridge too far.

“We are now asked to extend these precedents to a new configuration: an independent agency that wields significant executive power and is run by a single individual who cannot be removed by the president unless certain statutory criteria are met. We decline to take that step,” Roberts writes. “[…] There are compelling reasons not to extend those precedents to the novel context of an independent agency led by a single director. Such an agency lacks a foundation in historical practice and clashes with constitutional structure by concentrating power in a unilateral actor insulated from presidential control.”

Dissenting opinion

In the Court’s dissenting opinion, Justice Elena Kagan writes for Justices Ruth Bader Ginsburg, Stephen Breyer and Sonya Sotomayor, and argues that the majority opinion has crafted a specific case for the CFPB that does not align with established precedents or the rules set forth to govern other agencies.

“The majority’s explanation is that the heads of those agencies fall within an ‘exception’—one for multi-member bodies and another for inferior officers—to a ‘general rule’ of unrestricted presidential removal power,” Kagan writes. “And the majority says the CFPB Director does not. That account, though, is wrong in every respect. The majority’s general rule does not exist. Its exceptions, likewise, are made up for the occasion—gerrymandered so the CFPB falls outside them.”

While the majority decision takes aim at the CFPB’s single director structure, the Court did not address whether or not other single director government agencies — including the Social Security Administration and Federal Housing Finance Agency (FHFA), for instance — could have their leadership structures invalidated as a result of this decision.

Reactions, possible implications

Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit expressed general agreement with the decision as it was handed down, according to a statement.

“MBA believes that severing the provision related to the independence of the CFPB’s Director was the appropriate remedy if the Court found the Bureau’s structure to be unconstitutional,” Broeksmit said. “While we may not agree with every action the Bureau has taken in the past, today’s ruling will ensure the Bureau’s rules that our members and the nation’s consumers have come to rely on remain in place. We look forward to continuing conversations on the best structure for the CFPB as it fulfills its important statutory mandates to create strong consumer protections and promote financial opportunity.”

Lawyer Michael A. Cavallaro, partner at Minneapolis law firm Barnes & Thornburg LLP shared that the CFPB has now been reshaped, and that it may be more prone to observing the political interests of the incumbent administration both now and in the future.

“The decision represents a significant shift from the vision Elizabeth Warren had in the creation of the CFPB,” Cavallaro told RMD in an email. “While consumer protection is essentially a universal view, the exact manner in which consumers should be protected is not. Removal of the ‘for cause’ provision of the act will require the director to be in tune with the goals and vision of the current administration, and to consider what may be a concern to future administrations. This is likely to temper the aggression with which the CFPB seeks enforcement actions and narrow the scope to the most egregious violators, and may limit new rule-making to areas with considerable bipartisan support.”

Senator Elizabeth Warren (D-Mass.), one of the chief architects of the CFPB, expressed general optimism considering that a Supreme Court primarily featuring ideological opponents of the Bureau’s mission nonetheless ruled that the agency itself is lawful.

Counsel for the administration also stated in a Supreme Court brief that Kathleen Kraninger — the incumbent director of the CFPB — supported the challenge to her authority as presented by the case. Earlier this year about a month prior to the oral arguments of the case, the U.S. Department of Justice urged the Supreme Court to protect the CFPB in its final decision.

Read the decision at the U.S. Supreme Court.

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