U.S. Supreme Court Decision Expands the President’s Ability to Remove the Director of the Consumer Financial Protection Bureau

The U.S. Supreme Court has ruled in Selia Law v. Consumer Financial Protection Bureau that the structure of the Consumer Financial Protection Bureau (CFPB) is unconstitutional in violation of the separation of powers. According to the Court, since the CFPB has a single director who is ultimately responsible for all CFPB actions, the Director must be removable by the U.S. President at will, rather than only for “inefficiency, neglect of duty, or malfeasance in office,” as is provided in the CFPB’s authorizing statute. Below is a summary of the Court’s holding and rationale, as well as insight on what it means going forward.

Background

As part of its response to the 2008 financial crisis, Congress established the CFPB as an independent regulatory agency tasked with ensuring that consumer debt products are safe and transparent. Following its creation, Congress transferred the administration of 18 existing financial-related federal statutes to the CFPB, including the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and the Truth in Lending Act. The CFPB has extensive rulemaking, enforcement, and adjudicatory powers. Unlike many independent agencies, which are led by multimember boards or commissions, with partisan requirements and staggered terms, the CFPB is an independent regulatory agency led by a single director, who is appointed by the President, with the advice and consent of the Senate, for a five-year term. 

The Selia Law case stems from a civil investigative demand that the CFPB issued to Selia Law LLC in 2017. In response, Seila Law asked the CFPB to set aside the demand on the basis that the CFPB’s single-director structure violated the separation of powers because the President could only remove the CFPB Director for cause. Both the U.S. District Court for the District of Central California and the U.S. Court of Appeals for the Ninth Circuit Court disagreed and ordered Selia Law to comply with the demand. 

Holding

The Supreme Court vacated the holding of the lower courts, saying that the CFPB’s leadership by a single individual removable only for inefficiency, neglect, or malfeasance violates the separation of powers. The Court also held that this aspect of the CFPB is severable from the other parts of the CFPB, leaving them intact and allowing the agency to continue to operate, provided the CFPB Director is removable by the President at will. The Court remanded the case to the Ninth Circuit for further proceedings consistent with the decision.

In support of its decision, the Court noted that a single-director structure whereby the President may only remove the Director for cause “has no foothold in history or tradition” and “is also incompatible with the structure of the Constitution, which—with the sole exception of the Presidency—scrupulously avoids concentrating power in the hands of any single individual.” Additionally, the Court noted that the five-year term of the CFPB Director guarantees abrupt shifts in leadership and the loss of agency expertise between directors.

The significant administrative and enforcement authority of the CFPB Director also concerned the Supreme Court. The Court stated that “the CFPB Director is a principal officer whose duties are far from limited,” including the ability to impose “potentially billion-dollar penalties through administrative adjudications and civil actions.” The Court noted that the CFPB 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.” The CFPB’s vast authority, coupled with the fact that the CFPB does not rely on Congress for appropriations, created a significant concern for the Supreme Court that, without change, the agency will “slip from the Executive’s control, and thus from that of the people.”

What’s Next?

President Trump nominated the current Director of the CFPB, Kathy Kaninger, who took office in December 2018. Despite the expansion of the President’s power to remove the CFPB Director resulting from this case, at this time, we would not expect President Trump to replace Director Kaninger during the current administration. However, the President’s ability to remove the CFPB Director at will should create a greater degree of accountability from the CFPB to the President in current and future administrations. Director Kraninger said that the Supreme Court’s decision “finally brings certainty to the operations of the bureau,” and that the CFPB will continue its mission “with no question that we are fully accountable to the President.” 

In addition, Congress may work to enact legislation to change the structure of the CFPB, including the creation of a multimember board to run the agency (for which bank trade groups have advocated). However, as Senator Elizabeth Warren, who was a major player in the establishment of the CFPB, said in a statement issued in response to the Supreme Court’s decision “the CFPB is here to stay.”

Lewis Rice has a team of attorneys with broad experience in all aspects of bank capital structure, operations and lending. If you have any questions concerning the CFPB or other aspects of the federal bank regulatory regime, please contact one of our Banking & Finance attorneys.

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