The Supreme Court ruled Monday that the structure of the Consumer Financial Protection Bureau is unconstitutional, determining that its head must be removable at the will of the president.
The decision reduces the power of the agency, the brainchild of Elizabeth Warren, and is a victory for business groups. The court stopped short, though, of eliminating the bureau, as sought by conservatives.
“The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will,” Chief Justice John Roberts wrote for the 5-4 majority.
The decision agreed with a California-based law firm’s argument that the bureau’s leadership structure, featuring a sole director who was removable “only for cause,” violated the separation of powers rule under the U.S. Constitution.
The ruling overturns a federal district court ruling and appellate court decision that had rejected the law firm’s arguments. Cases challenging the constitutionality of the agency have been weaving their way through the lower courts in the past few years.
In 2016, Justice Brett Kavanaugh, then a judge on the U.S. Court of Appeals for the District of Columbia Circuit, said in a ruling in a similar case that the director of the CFPB was, except for the president, the “single most powerful official in the entire U.S. Government, at least when measured in terms of unilateral power.”
Many executives on Wall Street and Republicans on Capitol Hill would like to see the CFPB eliminated all together because they say it is an example of government overreach with too much unchecked power. Warren and Democrats say that the agency is an important watchdog working for American consumers.
In October 2019, the Supreme Court agreed to take up a dispute over the constitutionality of the agency, filed by the California-based law firm Seila Law. The law firm is being investigated by the CPFB for allegedly participating in “unlawful acts or practices in the advertising, marketing, or sale of debt relief services.” The investigation will continue after the Supreme Court decision, since the agency still has the power to investigate law firms for such debt relief services.
“Even after today’s ruling, the CFPB is still an independent agency,” said Senator Elizabeth Warren on Monday. “The director of that agency still works for the American people. Not Donald Trump. Not Congress. Not the banking industry. Nothing in the Supreme Court ruling changes that,” Warren said.
The CFPB has broad authority to regulate mortgages, credit cards, and other consumer products. It returned nearly $12 billion to consumers through 2017, before largely curtailing enforcement actions under President Donald Trump.
In 2018, Trump tapped Kathy Kraninger to replace Mick Mulvaney, the acting CFPB director. Kraninger herself argued that the for-cause removal provision for the CPFB director was unconstitutional, which would make it easier to fire her and any futured directors.
“Today’s Supreme Court decision finally brings certainty to the operations of the Bureau. We will continue with our important mission of protecting consumers with no question that we are fully accountable to the President,” said Kraninger on Monday.
Congress set up the CFPB as part of the Dodd-Frank financial reform package, and its director is appointed by the president and confirmed by the Senate. The director serves a term of five years.
Monday’s decision means that Kraninger, who’s been criticized by Democrats, could be fired by a Democratic president in 2021. Her appointment otherwise extends for three years into the next presidential term.
