SCOTUS to Decide whether the Consumer Financial Protection Bureau Violates Separation of Powers

The U.S. Supreme Court has agreed to consider Seila Law LLC v. Consumer Financial Protection Bureau, which involves the constitutionality of the Consumer Financial Protection Bureau’s structure. The specific question before the justices is whether the vesting of substantial executive authority in the CFPB, an independent agency led by a single director, violates the separation of powers.

Facts of the Case

In 2010, Congress enacted the Dodd-Frank Wall Street Reform Act and Consumer Protection Act. Among other efforts to increase oversight over the financial industry, the Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB). The CFPB is led by a single Director appointed by the President with the advice and consent of the Senate. The Director serves for a term of five years that may be extended until a successor has been appointed and confirmed. The Director may be removed by the President only for “inefficiency, neglect of duty, or malfeasance in office.”

Seila Law, LLC is a California law firm that provides a variety of legal services to consumers, including assistance with the resolution of consumer debt. In response to CFPB allegations that violated the Telemarketing Sales Rule, Seila Law argues that the CFPB is unconstitutionally structured, thereby rendering its investigation (and everything else the agency has done) unlawful. Specifically, Seila Law argues that the CFPB’s structure violates the Constitution’s separation of powers because the agency is headed by a single Director who exercises substantial executive power but can be removed by the President only for cause.

The district court sided with the law firm, holding that the structure of the CFPB did not violate the separation of powers. The Ninth Circuit affirmed. “Seila Law contends that an agency with the CFPB’s broad law-enforcement powers may not be headed by a single Director removable by the President only for cause. That argument is not without force,” Judge Paul Watford wrote on behalf of the appeals court. However, the Ninth Circuit went on to conclude that the Supreme Court’s separation-of- powers decisions, in particular Humphrey’s Executor v. United States, 295 U.S. 602 (1935), and Morrison v. Olson, 487 U.S. 654 (1988), must lead it to find that the CFPB’s structure is constitutionally permissible.

In Humphrey’s Executor, the Court rejected a separation-of-powers challenge to the structure of the Federal Trade Commission (FTC), finding that a for-cause removal restriction was a permissible means of ensuring that the FTC’s Commissioners would “maintain an attitude of independence” from the President’s control. In Morrison, the Court upheld the Ethics in Government Act of 1978, which established a special court and authorized the Attorney General to recommend the appointment of an “independent counsel” to investigate, and, if necessary, prosecute government officials for certain violations of federal criminal laws. The independent counsel was subject to a similar for-cause removal restriction.

“In short, we view Humphrey’s Executor and Morrison as controlling here. Those cases indicate that the for-cause removal restriction protecting the CFPB’s Director does not ‘impede the President’s ability to perform his constitutional duty’ to ensure that the laws are faithfully executed,” Judge Watford wrote. “The Supreme Court is of course free to revisit those precedents, but we are not.”

The Ninth Circuit’s decision is in line with PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018) (en banc), in which the D.C. Circuit Court of Appeals held that “shielding the Director of the CFPB from removal without cause is consistent with Article II.” Notably, Supreme Court justice Brett Kavanaugh dissented, arguing that the single director structure of the CFPB is distinguishable from the FTC structure condoned in Humphrey’s Executor. According to Kavanaugh, “when measured in terms of unilateral power, the Director of the CFPB is the single most powerful official in the entire U.S. Government, other than the President.”

Issues Before the Supreme Court

Both the CFPB and Seila Law asked the Supreme Court to intervene.“The time for this Court to resolve the long-running debate about the constitutionality of the CFPB is now,” Seila Law wrote in its petition for writ of certiorari. “The Court has consistently recognized that the Constitution empowers the President to keep federal officers accountable by removing them from office. While in limited circumstances the Court has upheld the constitutionality of certain multi-member ‘independent’ agencies, whose leading officers the President can remove only for cause, the Court has never upheld the constitutionality of an independent agency that exercises significant executive authority and is headed by a single person.

The justices grant certiorari on October 18, 2019. In addition to deciding whether the structure of the CFPB violates the separation of powers, the justices also directed the parties to brief and argue the following question: “If the Consumer Financial Protection Bureau is found unconstitutional on the basis of the separation of powers, can 12 U.S.C. §5491(c)(3) be severed from the Dodd-Frank Act?”

The case has not yet been scheduled for oral arguments, although it will be sometime in 2020. The Court will issue a decision by June, which means it may be a hot topic in the presidential election.