Tuesday, June 30, 2020

Justices preserve CFPB but with presidential ability to fire director at will

By Mark S. Nelson, J.D.

The Supreme Court issued its long-awaited opinion on the constitutionality of the Consumer Financial Protection Bureau’s single director structure. The CFPB was one of the signature pieces of the Dodd-Frank Act reforms and was created for the purpose of brining a degree of independence to consumer financial regulations. A somewhat fractured majority held that the CFPB’s single director structure fell outside of exceptions to federal agency organizational principles and, thus, violated separation of power principles, although the court was able to sever the offending provision from the CFPB’s organic statute to preserve the agency. As a result, the CFPB continues to exist, but its director is removable by the president at will. Justice Kagan led a four justice opinion concurring in the majority’s severability analysis, but otherwise dissenting regarding the scope of the majority’s understanding of court precedents regarding how Congress and the president coordinate on the creation of federal agencies. Justice Thomas also wrote separately to disagree with the court’s severability analysis (Seila Law LLC v. CFPB, June 29, 2020, Roberts, J.).

The case began when Seila Law received a civil investigative demand from the CFPB regarding the firm’s debt-related legal services. Seila Law challenged the CFPB’s single director structure arguing that it violated, among other things, separation powers.

The CFPB was created in the wake of the Great Recession at the urgings of its chief sponsor, Sen. Elizabeth Warren (D-Mass). The goal of the CFPB was to enhance consumer protections across a wide swath of the consumer financial services sector. The CFPB was designed as an agency with a single director whom the president could remove only for good cause. This structure was chosen by Congress to ensure a degree of independence for the CFPB.

The Supreme Court has previously upheld agencies structured with good cause removal provisions in their organic statutes. Chief Justice Roberts, however, explained that the “exceptions” available for such agencies only reach agencies designed to be led by a group of principal officers and to certain inferior officers whose duties are narrowly defined. The single director structure, according to the court, therefore violated separation of powers principles under Article II of the U.S. Constitution, which requires that the president take care to faithfully execute the laws.

Concurring/dissenting opinions. Justice Thomas, joined in concurrence by Justice Gorsuch, said the court moved in the right direction by limiting a key precedent to multimember agencies, without overruling that precedent. However, Thomas dissented to the extent he believed the court should not have addressed the issue of severability. Justice Roberts, in a portion of the opinion joined only by himself and two other justices, responded to what Justice Thomas characterized as an “aggressive” severability decision: “JUSTICE THOMAS would have us junk our settled severability doctrine and start afresh, even though no party has asked us to do so. *** We think it clear that Congress would prefer that we use a scalpel rather than a bulldozer in curing the constitutional defect we identify today.”

The four-justice dissent, led by Justice Kagan, by contrast, agreed with the court’s severability analysis but dissented from the broad sweep of the majority’s attempt to limit the types of federal agencies that can be subject to good cause removal: “The majority’s general rule does not exist. Its exceptions, likewise, are made up for the occasion—gerrymandered so the CFPB falls outside them. And the distinction doing most of the majority’s work—between multimember bodies and single directors—does not respond to the constitutional values at stake.”

Sen. Warren reaction. Senator Warren responded to the Supreme Court’s opinion with a series of tweets. The principal point made by the senator was this: “Even after today’s ruling, the @CFPB is still an independent agency. 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.”

The case is No. 19-7.