January 17th, 2021

On Law

Supremes will decide constitutionality of consumer watchdog bureau

 Robert Barnes

By Robert Barnes The Washington Post

Published Oct. 20, 2019

Supremes will decide constitutionality of consumer watchdog bureau
WASHINGTON - The Supreme Court on Friday said it will consider whether the creation of the watchdog Consumer Financial Protection Bureau by Congress in 2010 was unconstitutional, something the Trump administration and even the bureau's director say they now believe.

Conservatives have long contended that the authority given to the bureau's director violates the separation of powers. The CFPB, created in part by consumer advocates such as now-Sen. Elizabeth Warren (D-Mass.), and Congress have defended its independence.

But Solicitor General Noel Francisco, representing the Trump administration, told the Supreme Court in a brief last month that new director Kathleen Kraninger "has reconsidered that position."

That view could find a receptive audience at the Supreme Court. Justice Brett Kavanaugh took such a position in a similar case when he was a judge on the U.S. Court of Appeals for the D.C. Circuit.

The issue is that in creating the CFPB, Congress said it was protecting the bureau's autonomy by giving the director a five-year term and allowing removal only for "inefficiency, neglect of duty, or malfeasance in office." But the Constitution gives the president the power to remove top executive branch officials for any reason or no reason at all, the challengers say.

The Supreme Court "has consistently recognized that the Constitution empowers the president to keep federal officers accountable by removing them from office," Washington lawyer Kannon Shanmugam told the court in a brief.

"While in limited circumstances the court has upheld the constitutionality of certain multi-member 'independent' agencies . . . the court has never upheld the constitutionality of an independent agency that exercises significant executive authority and is headed by a single person."

Shanmugam is representing a California law firm, Seila Law, which objected to the CFPB's demand for information regarding an investigation of its practices in resolving consumer debt.

With the Justice Department and the agency itself now saying its structure is unconstitutional, the House of Representatives has asked the court to allow it to defend the CFPB.

"This case presents an issue of significant importance to the House: the constitutionality of the for-cause removal protection that Congress enacted to provide the CFPB director with a measure of independence, consistent with the agency's functions as a financial regulator," wrote the House's general counsel, Douglas Letter. "The Solicitor General has decided not to defend this Act of Congress, and the House should be allowed to do so as an amicus."

The bureau was created as part of the crackdown on Wall Street that resulted in the Dodd-Frank Wall Street Reform and Consumer Protection Act. It is part of the Federal Reserve System.

Congress gave the board "all authority" to set rules and guidelines pursuent to federal consumer financial laws and created a new prohibition on unfair and deceptive acts on certain parts of the consumer-finance industry.

Instead of structuring it like the multi-member Consumer Product Safety Commission, Congress created a single director.

There have been numerous challenges to the bureau's structure, but lower courts have upheld it.

The U.S. Court of Appeals for the D.C. Circuit upheld the bureau's constitutionality in an en banc decision that produced several opinions.

Judge Cornelia Pillard, writing for the majority, noted that the language used for removing the bureau's director-- "inefficiency, neglect of duty, or malfeasance in office"--matched that approved by the Supreme Court in a famous case from the 1930s protecting members of the Federal Trade Commission.

But Kavanaugh, in dissent, said that decision applied only to multi-member commissions, and not the unique single-director structure of the CFPB.

He agreed with the majority that even finding the CFPB's structure unconstitutional would not cause the entire Dodd-Frank Act to fall.

In his brief to the court on behalf of the Trump administration, Francisco said the separation of powers issue in the case has has "broad implications for the president's ability to supervise the executive branch, and creates uncertainty that undermines the bureau's ability to fulfill its mission."

Unless the Supreme Court settles the issue of its constitutionality, "those subject to the agency's regulation or enforcement can (and often will) raise the issue as a defense to the bureau's efforts to implement and enforce federal consumer financial law."

The case is Seila Law v. Consumer Finance Protection Bureau.

Sign up for the daily JWR update. It's free. Just click here.