Government LendingRegulatory

Will Supreme Court decision threaten CFPB independence?

Or will it bring more accountability?

On Friday, the Supreme Court agreed to hear the case to determine the constitutionality of the leadership of the Consumer Financial Protection Bureau – a move that has provoked a variety of responses.

As it stands now, President Donald Trump cannot fire the CFPB director unless it’s for cause. The previous decision made the CFPB director fireable at will, but that’s not the case anymore as the case continues to be challenged in court.

And now the Supreme Court will have the final say.

Various groups are torn on the hearing, with some saying a committee to head the bureau will keep it more accountable and others saying a ruling against the current structure could threaten the CFPB’s independence.

“If the Supreme Court invalidates the CFPB director’s for-cause removal protection, it would imperil the agency’s ability to function as intended, and it would allow free reign for bad financial actors to influence the agency,” said Yvette Garcia Missri, Center for Responsible Lending litigation counsel. “We’ve already seen payday lenders successfully push their plan to delay and weaken the payday rule, and restitution for consumer victims wronged by industry has significantly declined under the agency’s current political leadership.”

“Congress intentionally created the current structure so that the consumer bureau could make independent and unbiased decisions to protect consumers—even when those decisions are opposed by intense lobbying,” Garcia Missri said. ”The CFPB has been highly effective in responding to unlawful, abusive practices within the financial services industry. Its effectiveness and ability to respond to unlawful practices quickly, is attributable in part to its leadership by a single director and its insulation from political influence and industry capture.”

But others believe a change in CPFB leadership could actually bring more accountability to the bureau.

“We urge the Supreme Court to rule that the CFPB as structured is unconstitutional in order to help ensure government agencies are accountable to American consumers and voters,” said John Berlau, Competitive Enterprise Institute senior fellow.

“Under the leadership of current Director Kathleen Kraninger, the CFPB has made some positive, free-market reforms that greatly benefit consumers,” Berlau said. “But her good leadership doesn’t change our belief that the CFPB must be made constitutionally accountable by having a director subject to at-will removal by the person that Americans elect as their president.”

Many in the housing industry agree that a board to lead the bureau would be better than a single director.

“CUNA has consistently advocated for legislation that provides for a multi-person, bipartisan commission to lead the bureau, as was originally proposed by the Obama administration in 2009,” said Ryan Donovan, Credit Union National Association chief advocacy officer. “A commission is better for consumers because it would enhance the independence of the bureau, bring diverse perspectives to the policymaking table, ensure greater stability, and be more consistent with our country’s democratic principles.”

But there is some worry that Supreme Court Justice Brett Kavanaugh will be biased in this case.

“Justice Kavanaugh has demonstrated bias against the CFPB on these exact issues and must recuse himself from this case,” Allied Progress Director Derek Martin said. “He has previously weighed in on the specific question at stake in this matter – whether the CFPB director can be fired without cause. This case deserves to receive truly impartial judgment.”

Kavanaugh reportedly believes the CFPB, as it is currently structured, is unconstitutional.

And he’s written as much.

Back in 2016, Kavanaugh authored the Court of Appeals decision that declared the CFPB unconstitutional due to its leadership structure. The case that led to the CFPB being declared unconstitutional, which was brought by PHH, dealt with how much power the agency’s director held.

In Kavanaugh’s mind, the director of the CFPB is the “single most powerful official in the entire U.S. Government, other than the President,” in terms of unilateral power.

The CFPB’s ruling could now change that.

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