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Symposium: Justices to consider constitutionality of CFPB structure

The congressional commission that investigated the 2008 financial crisis concluded that the United States’ consumer-protection system was “too fragmented to be effective.” In response to that finding, in 2010 Congress created the Consumer Financial Protection Bureau as part of the Dodd-Frank Act. The CFPB – whose website describes the bureau as a “U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly” – is led by one director appointed by the president and confirmed by the Senate to serve a five-year term; once the director has been confirmed, the president can only remove her for “inefficiency, neglect of duty, or malfeasance in office.” On March 3, the Supreme Court will hear oral argument in a challenge to the constitutionality of that leadership structure.

The question came to the justices last year, after the CFPB initiated an investigation into whether Seila Law, a California-based law firm that provides debt-relief services to consumers, violated telemarketing sales rules. When Seila Law declined to respond fully to the CFPB’s request for information and documents, the agency went to federal court in California to enforce the request. Seila Law responded by challenging the CFPB’s authority to issue the request. The law firm argued that the CFPB’s structure is unconstitutional because the bureau is headed by only one director, who wields significant power but can only be removed “for cause” rather than “at will” – that is, for any reason.

The federal district court rejected the law firm’s argument and upheld the agency’s request, and the U.S. Court of Appeals for the 9th Circuit affirmed. The court of appeals acknowledged that Seila Law’s challenge to the CFPB’s structure was “not without force,” but it opted to follow a decision by the U.S. Court of Appeals for the District of Columbia Circuit, which spurned a similar challenge in 2018 in a case called PHH Corporation v. CFPB. The 9th Circuit pointed to a 1935 Supreme Court decision called Humphrey’s Executor v. United States, in which the justices rejected the argument that the structure of the Federal Trade Commission, with five commissioners who could be removed only for cause, violated Article II of the Constitution. Article II gives executive power to the president, who must “take care that the laws be faithfully executed.” The CFPB is similar to the FTC, the 9th Circuit reasoned: It exercises similar “quasi-legislative and quasi-judicial powers” and also “acts in part as a financial regulator,” both of which suggest that Congress would have wanted the CFPB to be independent of the president’s control. And although the CFPB only has one director, the 9th Circuit continued, the court’s decision in Humphrey’s Executor didn’t seem to hinge on the number of commissioners.

Seila Law then went to the Supreme Court, asking the justices to weigh in. The CFPB – now represented by the U.S. solicitor general – did not defend the 9th Circuit’s ruling; instead, it agreed with Seila Law that the restrictions on the president’s ability to remove the agency’s director violate the Constitution. The justices granted review in October of last year, and a few days later the court appointed Paul Clement, a former U.S. solicitor general, to defend the 9th Circuit’s ruling and the CFPB’s structure.

In his brief, Clement urges the justices to steer clear of the question that Seila Law has asked it to answer. Although the question whether the CFPB’s leadership structure violates the Constitution is “undoubtedly important,” Clement writes, it has “almost nothing to do with the actual dispute” between Seila Law and the CFPB, which arises simply from “an effort by the CFPB to enforce a garden-variety civil investigative demand.” It seems unlikely that there was ever “any real connection” between the CFPB’s request for information from Seila Law and the president’s ability to remove the CFPB’s director, Clement posits. But even if the previous director’s decision to authorize the petition to enforce the request for documents and information was influenced by the director’s belief that he could only be fired for cause, Clement continues, the current head of the CFPB, Kathy Kraninger, believes that the president can remove her for any reason – but has nonetheless not dropped the enforcement petition. Seila Law’s injury, Clement concludes, therefore cannot be attributed “to the constitutional issue it wishes to have adjudicated.” Even if there were enough of a connection, Clement adds, the justices should still wait to decide the constitutionality of the leadership structure in a case in which the removal of the director is actually being challenged.

Defending the leadership structure, Clement stresses that although the Constitution does not address the issue of removal, it does give Congress “substantial discretion” to structure the executive branch. Exercising that discretion, he explains, Congress has long given responsibility to executive officials who can be removed only “for cause,” and cases like Humphrey’s Executor provide what Clement describes as “a perfectly workable standard” to evaluate the constitutionality of restrictions on the president’s authority to remove officials: “So long as Congress leaves removal authority with the President and does not attempt to assign it elsewhere, it may impose modest restrictions on his authority.”

In any event, Clement assures the justices, the court can sidestep any problems that the removal restrictions might create by reading the “for cause” provision narrowly. The “inefficiency, neglect, or malfeasance” standard, Clement suggests, has been interpreted as establishing a fairly low bar – for example, requiring the president to have “some reason, beyond simply wanting his ‘own man,’ to remove an officer.” But there are no “hard and fast rules” about exactly what “good cause” to fire someone means, and the standard – especially the word “inefficiency” – could be interpreted to include a wide range of conduct. Indeed, Clement observes, it might be enough for the president simply to provide any reason for removing an official.

Seila Law and the CFPB paint a very different picture, with Seila Law emphasizing that the Supreme Court has never upheld the constitutionality of an agency like the CFPB. They distinguish the CFPB’s structure as “a far cry” from that of the FTC, stressing that the Supreme Court in Humphrey’s Executor upheld “a restriction on the removal of members of a nonpartisan, multimember commission that it viewed (whether rightly or wrongly) as exercising no executive power.” By contrast, they point out, only one person is in charge of the CFPB, which has “substantial executive power,” including the power to conduct investigations, issue subpoenas or requests for information and file lawsuits in federal court. Moreover, they add, it is harder for the president to control a single director, especially when she serves a five-year term. For example, the current CFPB director was appointed in 2018 and will serve until 2023, two years after the winner of the 2020 election takes office. Nor is the president able to control the CFPB through the budget process, because the CFPB is funded through the Federal Reserve system – which also immunizes it from congressional oversight.

The Supreme Court’s 1988 decision in Morrison v. Olson, in which the justices rejected a challenge to a statute providing that an independent counsel appointed by an attorney general could only be removed for “good cause,” does not show that the CFPB’s structure is constitutional, Seila Law adds. That case involved the removal of an inferior officer by the attorney general; there was no argument made regarding whether the Office of the Independent Counsel was unconstitutional because the independent counsel was one person. Seila Law and the CFPB conclude by urging the court to overrule Humphrey’s Executor if necessary. Humphrey’s Executor, Seila Law tells the justices, has “become a derelict on the waters of the law, and the time has come for the Court to scuttle it.”

If the Supreme Court rules that the leadership structure is unconstitutional, it then must make another decision: What should the remedy for the constitutional violation be? Here Seila Law and the government see things differently. Seila Law suggests that the remedy should be limited in scope: Because the structure of the CFPB is unconstitutional, the demand for information and documents was invalid, and the CFPB’s petition to enforce that demand should be denied.

If the court wants to go further, Seila Law explains, it has two options. It can eliminate – or, in legal terms, “sever” – the “for cause” provision from the rest of the statute creating the CFPB, so that the president can remove the director at will. Or, it can invalidate the entire statute creating the CFPB. But the long-term remedy for the problems in the CFPB’s structure is a job for Congress, Seila Law maintains, rather than the Supreme Court. If it had a choice, Seila Law predicts, Congress would have chosen a third option – making the CFPB a multimember commission like the FTC. Because the Supreme Court can’t transform the CFPB into such a commission, Seila Law asserts, the justices should give Congress time to decide how to proceed from here. But if the court still opts to reach the question of severability, Seila Law concludes, it should invalidate the entire statute creating the CFPB.

The CFPB counters that, consistent with the Supreme Court’s normal practice, if any part of the Dodd-Frank Act – including the “for cause” removal restrictions – is deemed unconstitutional, the rest of the act should survive. The CFPB reminds the justices that Congress included a severability clause in the Dodd-Frank Act, which the court should apply unless there is “strong evidence that Congress intended otherwise” – which there is not. There is no reason, the CFPB argues, to believe that Congress would have wanted the entire part of the Dodd-Frank Act creating the CFPB to be struck down if one part of that act were invalidated. And in particular, the CFPB concludes, there is no reason to believe that Congress would have preferred no CFPB at all to a CFPB with a director who could be removed at will.

This diverse range of views on the question of remedy is also reflected in the many “friend of the court” briefs filed in the case. A brief filed by former U.S. Solicitor General Theodore Olson on behalf of the Center for the Rule of Law urges the justices to strike down the whole law creating the CFPB. Olson contends that eliminating only the “for cause” removal restrictions would not address other pending cases challenging the CFPB’s actions and would leave lower courts “without guidance as to how to proceed.” But a brief by the Mortgage Bankers Association tells the justices that striking down the entire act “would immediately cause significant disruption to the American economy” and create “substantial uncertainty in our housing markets.” And a brief on behalf of Sen. Mike Lee (R-Utah) and two other senators supports Seila Law’s proposal that the justices should “craft a remedy that is narrow enough to resolve the controversy between the parties in this case, and leave the broader remedial questions to Congress.”

The court’s ruling will likely have ripple effects well beyond the CFPB. At their conference on January 10, the justices considered – but did not act on – a petition challenging the leadership structure of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. The petition, which stems from a dispute over hundreds of billions of dollars, is almost certainly on hold until the justices act in the CFPB case. Notably, we know how at least one justice is likely to approach the case: While he was a judge on the D.C. Circuit, Justice Brett Kavanaugh dissented from the full circuit’s ruling upholding the structure of the CFPB in PHH Corp. He would have agreed with PHH that the CFPB’s “novel structure – an independent agency headed by a single Director – violates” the Constitution. A decision in the case is expected by late June.

This post was originally published at Howe on the Court.

Recommended Citation: Amy Howe, Symposium: Justices to consider constitutionality of CFPB structure, SCOTUSblog (Feb. 10, 2020, 11:30 AM),