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 analysis: Court strikes down restrictions on removal of CFPB direction buy leaves bureau in place, SCOTUSblog (Jun. 29, 2020).