Supreme Court Orders Restructuring of CFPB

June 29, 2020 11:45 AM
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The Consumer Financial Protection Bureau (CFPB) is an agency with a legal and political history of problems. The US Supreme has now weighed in on the latest step for this agency which has been under fire for the past ten years as a result of its unique structure.

In the wake of the 2008 financial crisis, Congress established the CFPB, an independent regulatory agency responsible for ensuring consumer debt products are safe and transparent. Congress transferred the administration of 18 existing federal statutes to the CFPB involving consumer debt issues.

The CFPB was an idea espoused by former Democratic presidential candidate Elizabeth Warren. It has been a source of political dissension ever since with Democrats citing a need to combat a financial-industry that harms consumers and Republicans warning of government regulation that exceeds Constitutional restrictions.

In creating this new agency, Congress gave the CFPB extensive rulemaking, enforcement, and adjudicatory powers, including the authority to conduct investigations, issue subpoenas and civil investigative demands, initiate administrative adjudications, prosecute civil actions in federal court, and issue binding decisions in administrative proceedings. The CFPB may seek restitution, disgorgement, injunctive relief, and significant civil penalties for violations laws under its purview.

The CFPB is led by a single director appointed by the President with the advice and consent of the Senate. The director is appointed for a five-year term. The president may remove the director only for “inefficiency, neglect of duty, or malfeasance in office.”

In this case, a California-based law firm that provides debt-related legal service was issued a demand by the agency for information and documents related to the firm’s business practices. The firm asked the CFPB to set aside the demand because the agency’s leadership by a single Director removable only for cause violated the separation of powers.

The CFPB declined to back off of its demand and the law firm refused to comply. CFPB filed a petition to enforce its demand for information and documents in District Court. Ultimately, the Ninth Circuit Court of Appeals agreed with the CFPB.

But, as seems to occur with some regularity, the US Supreme Court disagreed with the Ninth Circuit. The Supreme Court reversed and remanded the case.

Chief Justice Roberts wrote the opinion of the Court. He observed that Congress deviated from the structure of nearly every other independent administrative agency in our history when creating the CFPB. Instead of placing the agency under a board with multiple members, Congress pro- vided the agency would be led by a single director. That person serves for a longer term than the president and cannot be removed except for inefficiency, neglect, or malfeasance.

Does this arrangement violate the Constitution’s separation of powers?

The Court’s answer is “yes,” it does violate the Constitution.

Justice Roberts wrote:

We are now asked to extend…precedents to a new configuration: an independent agency that wields significant executive power and is run by a single individual who cannot be removed by the President unless certain statutory criteria are met. We decline to take that step….Such an agency lacks a foundation in historical practice and clashes with constitutional structure by concentrating power in a unilateral actor insulated from Presidential control.

In addition, Justice Roberts wrote, in overturning the law creating the agency that:

Constitutional avoidance is not a license to rewrite Congress’s work to say whatever the Constitution needs it to say in a given situation. Without a proffered interpretation that is rooted in the statutory text and structure, and would avoid the constitutional violation we have identified, we take Congress at its word that it meant to impose a meaningful restriction on the President’s removal authority.

As the Court identified a significant problem as to the lack of presidential control over the agency, the court changed the CFPB removal provision to make the CFPB director subject to presidential removal for any reason.

Seila Law LLC v. CFPB

© 2020 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47

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