After four years of speculation, the U.S. Supreme Court has chosen a case to decide the constitutionality of the Consumer Financial Protection Bureau (CFPB).
Seila Law, an Orange County, Calif. law firm appealing a civil investigative demand (CID) request, had petitioned the Supreme Court to rule on a lawsuit that makes a case for abolishing the bureau and every regulation enacted by it.
On Friday, the high court granted the request.
The case is Seila Law LLC v. Consumer Financial Protection Bureau (U.S. Supreme Court, No. 19-7).
“The petition for a writ of certiorari is granted,” the court announced. “In addition to the question presented by the petition, the parties are directed 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 House of Representatives recently asked the court to deny the petition or alternatively, allow them to argue for the bureau since the Department of Justice (DOJ) has chosen not to defend the constitutionality of the agency.
“The motion of United States House of Representatives for leave to file a brief as amicus curiae out of time is granted,” the court wrote. “The motion of Alan B. Morrison for leave to file a brief as amicus curiae out of time is granted.”
PHH Corp. – which appealed a $109 million judgment for alleged RESPA violations under then-CFPB Director Richard Cordray – was the first to argue the CFPB is unconstitutional.
“I think it’s fascinating this issue will be resolved in the Supreme Court. It’s taken some time to get there, but it’s gotten there now,” lead PHH attorney Mitch Kider, chairman and managing partner at Weiner Brodsky Kider PC, told RESPA News. “I actually believe the single-director, independent agency usurps the powers of the presidency. I don’t think it’s constitutional. If I had to make an educated decision as to which way it’s going to come down, I think the structure of the single-director agencies for the most part are unconstitutional, and I think the court will fix that.
“They have two choices. They can declare the entire structure unconstitutional and force it back to Congress, in which case you would end up with a bipartisan commission, or they could do what then-Judge Kavanaugh said in the PHH case and make it so the president can terminate the single-director without cause. I think that’s probably the easiest approach to take, and the approach that probably will be taken by the court. But there are a number of people who believe that all independent agencies – even ones with commissions – are not constitutional because they are effectively the fourth branch of government. There are people who believe all independent agencies should be stricken in their entirety. I don’t know if the Supreme Court will go that far. The likely result is the Supreme Court effectively makes the CFPB, FHFA and other single-director agencies subject to the president’s ability to terminate the director with or without cause.”
CFPB Director Kathy Kraninger sent a letter Sept. 17 to House Majority Leader Mitch McConnell stating that although she remains committed to fulfilling the bureau’s statutory responsibilities, she agrees with the DOJ’s new position that the for-cause removal provision of the Consumer Financial Protection Act is unconstitutional.
The DOJ reversed its previous stance that the CFPB’s structure is unconstitutional in response to Seila Law’s July petition.
The CFPB had defended the constitutionality of the provision in the court of appeals, which agreed with the bureau’s prior position – and the conclusion of the en banc court of appeals for the D.C. Circuit – that the for-cause removal protection is constitutional.
Seila and the single-director CFPB are arguing that the Supreme Court’s precedent upholding limitations on the president’s authority to remove agency heads should be limited to multi-member agencies.
Since the DOJ’s reversal, two other petitions for certiorari have been filed with nearly identical constitutional questions.
In CFPB v. All American Check Cashing, the Mississippi payday loan company is arguing the bureau’s structure violates the constitutional separation of powers, and the only solutions are to set aside all actions or abolish the bureau entirely. The Fifth Circuit, though, has not yet ruled on All American’s motion to reverse the district court’s decision denying its motion for judgment on the pleadings and to declare the CFPB’s structure violates the constitution.
In Collins v. Mnuchin, shareholders of Fannie Mae and Freddie Mac suing over the government’s new worth sweep of profits by the agencies filed a petition claiming their lawsuit is the best case to decide the constitutionality of single-director agencies such as the CFPB. The Fifth Circuit recently issued an en banc decision finding the single-director, for-cause only removal structure of the Federal Housing Finance Agency (FHFA) that oversees Fannie and Freddie was unconstitutional.
However, Seila argued in its reply brief that neither of those cases were appropriate to decide the constitutionality issue.
In January, the Supreme Court declined to hear another petition filed by State National Bank of Big Spring, Texas, the Competitive Enterprise Institute (CEI) and the 60 Plus Association.
In the State National Bank case, recently appointed Justice Brett Kavanaugh recused himself from voting. Kavanaugh had previously participated in the case while a judge on the D.C. Circuit, authoring the court of appeals’ 2015 decision addressing petitioners’ standing to challenge the constitutionality of the bureau’s structure.
State National Bank focused on the combination of the bureau’s single-director structure vs. a commission and the president’s inability to remove the director without cause.
In its August 2015 appeal, PHH challenged Cordray’s interpretation of RESPA and the agency’s one-director, removable-only-for-cause structure.
In October 2016, the Columbia District Court of Appeals ruled that the single-director structure at the CFPB is unconstitutional. However, in January 2018, the en banc D.C. Circuit found the CFPB was constitutionally structured.
Since then, other challenges followed, some citing Kavanaugh’s dissent in the original three-judge panel ruling as the better-reasoned opinion.
In the original three-judge panel ruling, then-Judge Kavanaugh wrote an opinion which put the case in terms of congressional overreach and unaccountable executive power.
“This is a case about executive power and individual liberty,” Kavanaugh wrote. “The U.S. government’s executive power to enforce federal law against private citizens – for example, to bring criminal prosecutions and civil enforcement actions – is essential to societal order and progress, but simultaneously a grave threat to individual liberty. The CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.”
In June 2018, a New York federal judge ruled the CFPB structure is unconstitutional. U.S. District Judge Loretta Preska’s opinion forbade the agency from joining the New York Attorney General in suing RD Legal Funding, a New Jersey-based firm that advances money to people waiting for cash settlements.
The CFPB and attorney general filed a 2017 lawsuit alleging RD Legal Funding violated the Consumer Financial Protection Act (CFPA) by falsely advertising their agreements with consumers as sales rather than loans, and misleading consumers – including those who suffered in the Sept. 11 attacks and former NFL players who sustained brain injuries from playing football – into believing the defendants had the ability to expedite payment from the settlement fund administrators.
Preska agreed with the firm that the CFPB lacks authority to bring claims under the CFPA because the CFPB is unconstitutionally structured.
In her 108-page opinion, Preska acknowledged that the Court of Appeals for the District of Columbia Circuit in PHH Corp. v. CFPB upheld the constitutionality of the CFPB, which was established as an “independent bureau” within the Federal Reserve System.
However, the judge determined that the majority opinion in the D.C. court’s decision is not binding on her court.
Instead, Preska chose to rely on the reasoning behind dissenting opinions, written by justices who earlier determined the CFPB’s structure to be unconstitutional.
“Respectfully, the court disagrees with the holding of the en banc court and instead adopts Sections I-IV of Judge Brett Kavanaugh’s dissent (joined in by Senior Circuit Judge A. Raymond Randolph), where, based on considerations of history, liberty and presidential authority, Judge Kavanaugh concluded that the CFPB ‘is unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single director,’ ” Preska stated in her opinion.
However, Preska disagreed with the portion of Kavanaugh’s opinion which determined that eliminating the for-cause removal provision from the Dodd-Frank Act and allowing the CFPB director to be supervised, directed and removed at will by the president would cure the constitutionality question.
“A severability clause ‘does not give the court power to amend’ a statute,” Preska added. “Nor is it a license to cut out the ‘heart’ of a statute,” Preska wrote, citing the dissenting opinion in the en banc decision written by Judge Karen LeCraft Henderson. “Because section 5491 (c) (3) is at the heart of Title X, I would strike Title X in its entirety.”
Then in August 2018, U.S. District Judge Brian Morris in Montana ruled the CFPB is constitutional.
Morris’ opinion denies a motion to dismiss by Think Finance, a Fort Worth, Tex.-based debt collector that was sued by the CFPB in 2017 for allegedly violating the CFPA. The bureau claimed the company used unfair and abusive practices to collect on the void loans and provided substantial assistance to tribal lenders and other entities who also demanded payment on void debts.
Think Finance argued the complaint should be dismissed because the structure of the bureau is unconstitutional since the president may remove the director only for cause, and because the CFPB’s ability to control its own budget – subject to a statutory cap – unconstitutionally interferes with Congress’s power to direct federal spending pursuant to the Appropriations Clause of the Constitution.
The judge disagreed.
“Nine district court orders have determined that Congress did not violate the constitution in structuring the CFPB,” Morris said in his ruling. “Only one circuit court that has considered the issue has determined the CFPB to be unconstitutionally structured (PHH Corp. v. CFPB, 2016). The D.C. Circuit subsequently reversed that decision upon en banc consideration.”
The judge noted that the D.C. Circuit ultimately determined that the for-cause removal requirement does not impair the president’s ability to follow the law. In addition, federal courts in Mississippi, California, Minnesota, Pennsylvania and Indiana had already found the CFPB to be constitutionally structured.
Last May, the CFPB was again ruled constitutional – this time by the Ninth Circuit Court of Appeals in the Seila Law case.
Seila argued that the Supreme Court’s decision in Humphrey’s Executor v. United States does not apply to the CFPB – even though the D.C. Circuit Court of Appeals ruled that it did in PHH Corp. v. CFPB, thus upholding the bureau’s structure as constitutional.
Humphrey’s Executor upheld a limitation on the president’s authority to remove commissioners of the Federal Trade Commission (FTC) for inefficiency, neglect of duty or malfeasance in office.
RESPA News will be following this story in the weeks to come.