The Consumer Financial Protection Bureau (“CFPB”) is slightly less than a decade old, created in the wake of the 2008 financial crisis to enforce the nation’s consumer financial protection laws and ensure that consumer debt products are safe and transparent for the consumers who use them.  The Bureau has had only two directors, Richard Cordray and Kathleen Kraninger, with Mick Mulvaney as Acting Director in between.  SCOTUS’s recent ruling will give the president the right to fire the director at will, unless Congress acts to change CFPB to a commission structure (like the FTC).  The ruling is important but leaves a number of unanswered questions likely to spur further litigation and CFPB challenges.

Single Director Provisions and Constitutionality

Unlike many agencies, which are governed by multimember boards and commissions, the CFPB is governed by a single director, who is appointed by the president, confirmed by the Senate for a five-year term, and may only be removed for “inefficiency, neglect of duty, or malfeasance in office.”  See 12 U.S.C. §§ 5491(c)(1),(3). This leadership structure and, by association, the constitutionality of the organization itself, was challenged in Seila Law, LLC v. Consumer Financial Protection Bureau, 591 U.S. ___, (2020) a case on appeal from the Ninth Circuit.  In 2017, the CFPB issued a civil investigative demand (“CID”) to Seia Law LLC, a California law firm specializing in debt-related legal services.  In response to the CID, Seia Law asked the CFPB to set it aside on the grounds that the Bureau’s leadership structure was unconstitutional insofar as its single director structure violated the separations of powers.  The District Court held for the CFPB and the Ninth Circuit affirmed.  See Consumer Financial Protection Bureau v. Seila Law LLC, 923 F.3d 680 (9th Cir. 2019).    

The Roberts Majority Opinion

The Supreme Court of the United States vacated the judgment of the Ninth Circuit and per Chief Justice John Roberts’s majority opinion (joined by Justices Thomas, Alito, Gorsuch, and Kavanaugh), “the CFPB’s leadership by a single individual removable only for inefficiency, neglect, or malfeasance violates the separation of powers.”  See Seila Law, 591 U.S. at 11-30.  Article II provides the president with executive powers that empower him to “take care that the laws be faithfully executed.”  See U.S. Const. art. II.  Time and again, precedent has confirmed that such executive powers permit the president to both appoint and remove executive officials.  In advancing the argument of the Ninth Circuit, Paul Clement, whom the Supreme Court appointed to defend the Ninth Circuit’s ruling, looked to Humphrey’s Executor v. United States, 295 U.S. 602 (1935), where the Supreme Court held that the structure of the Federal Trade Commission (“FTC”) – consisting of five members who could be removed only for cause – did not violate Article II of the Constitution.  Since the 1935 decision in Humphrey’s, the Court has recognized two exceptions to the president’s power to remove those whom he appoints: 

“Congress could create for-cause removal protections for a multimember body of experts, balanced along partisan lines, that performed legislative and judicial functions and was not to exercise any executive power; [and] [sic.] exceptions for inferior officers, who have limited duties and lack policymaking or administrative authority, such as an independent counsel.”  See Amy Howe, Opinion analysisCourt strikes down restrictions on removal of CFPB direction buy leaves bureau in place, SCOTUSblog (Jun. 29, 2020).

Chief Justice Roberts noted, however, that the CFPB does not fit within either of the above exceptions.  The CFPB Director, in his or her official capacity, can issue binding decisions and final orders.  The CFPB Director may seek monetary penalties against private parties.  Finally, the CFPB Director is not an inferior officer.  To extend the removal restrictions outlined in Humphrey’s to the set of facts in Seila is impossible.  Roberts noted that the CFPB, both in its composition and as an agency, is something the Court had not grappled with before.  Per Roberts’s opinion, the CFPB is “an independent agency that wields significant power and is run by a single individual who cannot be removed by the President unless certain statutory criteria are met,” and that “such an agency lacks [precedent] and clashes with constitutional structure by concentrating power” in one individual who is immune from presidential oversight.  See Seila Law, 591 2-3.

While the removal restrictions in the Bureau’s charter are now unconstitutional, the Court’s ruling does not invalidate the entirety of the CFPB and the Dodd-Frank Act that provides the agency its oversight authority and enforcement powers.  As Roberts pointed out in his opinion, “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.”  Id. at 33.  The structure of the law provides for severability in the event of constitutional challenge to the act.  Per 12 U.S.C. § 5302, “if any provision of [the] Act is “held to be unconstitutional,” the remainder of the law survives and remains intact.           

The Thomas and Gorsuch Concurrence

Justices Clarence Thomas and Neil Gorsuch filed a concurring opinion, underscoring that the ruling in Humphrey’s should be reserved for “multimember expert agencies that do not wield substantial executive power.”  See Saila Law, 591 1 (Thomas, J. concurring).  Thomas went onto argue that the Court should revisit the precedent set by Humphrey’s in the future, referring to the decision’s foundation as “nonexistent”, writing that to use Humphrey’s as justification for both the creation and continued existence of independent agencies “creates a serious, ongoing threat to our Government’s design.”  Id. at 14.  While still finding for Seila Law, Thomas disagreed with Roberts with regards to his use of the severability doctrine to separate the removal proceedings question from the secondary and subsequent question of the constitutionality of the CFPB itself.  Thomas opined Seila Law could simply have denied the CFPB’s request to enforce the CID’s demand for document production on grounds related to the CFPB’s unconstitutional removal protections, sidestepping the severability question entirely.  See id. at 17.  For Thomas, the CFPB’s CID could not be enforced against Seila, “regardless of whether the CFPB’s ratification theory is valid.”  Id

The Kagan Dissent

Justice Elana Kagan and her co-dissenters (Justices Ginsburg, Sotomayor, and Breyer) argued that the removal procedures implemented by the Dodd-Frank Act and employed by the CFPB are in-line with Congress’s intent to create independent agencies for specified purposes that do not otherwise involve the executive oversight of the president.  Kagan argued that “rather than impose rigid rules like the majority’s, [courts] should let Congress and the President figure out what blend of independence and political control will best enable an agency to perform its intended functions.”  Id. at 23 (Kagan, J. dissenting).  Kagan wrote “the analysis is as simple as simple can be.  The CFPB Director exercises the same powers, and receives the same removal protections, as the heads of other, constitutionally permissible independent agencies.”  Id. at 28.  Kagan even went so far as to say that the mere fact the CFPB has one director is not an affront to presidential powers, noting that Humphrey’s was not decided based upon the number of administrators in the agency.  In support, Kagan noted other agencies with singular directors, such as the Social Security Administration, the Office of the Comptroller of the Currency, and the Federal Housing Finance Agency (“FHFA”).  Id. at 30.  If anything, Kagan argued, the president might have an easier time controlling the singular director of an agency than he or she would controlling a multimember board of directors.  Id. at 34 (“A multimember structure reduces accountability to the President . . . Indeed, that is why Congress so often resorts to hydra-headed agencies”.).  Kagan concludes that the CFPB falls victim to what “the majority sees as a constitutional anti-power-concentration principle,” accusing the majority of extrapolating Article II’s provision of executive powers to constrain Congress’s ability to legislate and create independent agencies where necessary.  Id. at 35. 

Going Forward  

Pragmatically, the ruling makes it likely that the directorship of the CFPB will change with each new administration.  That could be troubling for industry, as it may tend to cause inefficient pendulum swings in regulation, supervision and enforcement with each new administration.  More immediately, a number of cases were stayed pending the Seila Law ruling, which will now activate and possibly result in inconsistent lower court rulings on the question of whether the CFPB CIDs are enforceable.  Those results may drive further appeals.  More plaintiffs may challenge pre-Selia CFPB enforcement actions and regulations, as without authority to the extent those actions were taken by a director without constitutionally acceptable removal provision in place.  The Selia decision could also impact the FHFA, which has a similar single director structure where the director can only be fired “for cause” and where that structure is being challenged in court.  For a regulatory agency whose oversight consists of Fannie Mae, Freddie Mac, and federal home loan banks, directorship volatility could impact attempts to reform the nation’s housing finance system and remove the GSEs from government conservatorship.  It is difficult to envision, with all the other current challenges and priorities, a structural change to the CFPB being successfully negotiated in this Congress prior to the 2020 election.