The Supreme Court has held that the Consumer Financial Protection Bureau’s (CFPB) single-director, for-cause removal structure is unconstitutional because it violates the separation of powers.

However, the court found that the structure can be saved by striking out the for-cause termination provision.

“Today’s Supreme Court decision finally brings certainty to the operations of the bureau,” CFPB Director Kathy Kraninger said via Twitter. “We will continue with our important mission of protecting consumers with no question that we are fully accountable to the president. Consumers and market participants should understand that the same rules continue to govern the consumer financial marketplace.”

Industry calls for CFPB commission Industry experts and trade organizations said they fear the Supreme Court’s ruling Monday finding the Consumer Financial Protection Bureau’s (CFPB) single-director, for-cause removal structure is unconstitutional will lead to more questions than answers as to the agency’s powers. The Supreme Court found that the Consumer Financial Protection Bureau’s (CFPB) single-director, for-cause removal structure is unconstitutional. For reaction from RESPRO President/Executive Director Ken Trepeta, attorney Marx Sterbcow, Dorsey & Whitney Partner Joseph Lynyak III, among others, read our reaction story, online now.

The decision was authored by Chief Justice John Roberts, and referenced a similar decision he authored in Free Enterprise Fund v. Public Accounting Oversight Board. The 5-4 decision saw Justices Samuel Alito, Neil Gorsuch, Brett Kavanaugh and Clarence Thomas join Roberts – although Thomas did not join the majority in finding the for-cause removal protection severable from the Dodd-Frank Act.

Notably, the ruling pointed out that previous Supreme Court decisions in Humphrey’s Executor v. United States and Morrison v. Olson did not resolve whether the director’s protection from removal was constitutional. Thus, the court said, the question was whether to extend those rulings to a “new situation.”

“The court declines to extend these precedents to an independent agency led by a single director and vested with significant executive power,” the court ruled.

Mayer Brown LLC Partner Phil Schulman broke down the decision for RESPA News. “The majority found the single-director provision of the CFPB Act to interfere with Article II of the Constitution that empowers the president to execute the laws of the land,” Schulman said. “The majority fashioned a remedy that called for severing the for-cause provision of the CFPB Act while leaving the remainder of the CFPB intact. 

“The majority however, had to walk a fine line because it found similar for-cause provisions to be constitutional when applied to multimember independent agencies and inferior public officials. That did not sit well with Justice Thomas, who, joined by Justice Gorsuch, thought the appropriate remedy would have been to deny the CFPB’s demand for documents as the entire agency should have been declared unconstitutional. Justice (Elena) Kagan, joined by justices (Ruth Bader) Ginsburg, (Stephen) Breyer and (Sonia) Sotomayor, objected to the majority opinion. They declared that the court should not substitute its views for that of Congress, which has the authority to make laws, including powers to be conveyed upon a single director of the CFPB.”

The White House issued a statement following the announcement.

“Today’s decision represents an important victory for the fundamental principle that government officials should be accountable to the American people,” Press Secretary Kayleigh McEnany said. “The Constitution vests the power of the executive branch solely in the president without any limitation on his ability to remove leaders of executive agencies. As Alexander Hamilton so eloquently argued in Federalist 70, unity in the executive branch is essential for providing the president with the authority needed for the effective administration of government and to make the president fully accountable to the electorate every four years for the management of the executive branch, which inherently includes the appointment and removal of government officials.”

The court heard oral arguments in Seila Law v. CFPB March 3, less than two weeks before the Supreme Court suspended oral arguments because of the pandemic.

Last October, the Supreme Court chose Seila Law as the case that could decide the constitutionality question. The Orange County, Calif., law firm, which appealed a civil investigative demand (CID) request, makes a case for abolishing the bureau and every regulation enacted by it. However, it was not a given that the court would use Seila to decide the constitutionality issue.

Seila Law said the court did not need to rule on the constitutionality remedy for the CFPB to invalidate its civil investigative demand (CID) against the company, but if it did reach the issue of severability, it should invalidate Title X of the Dodd-Frank Act in its entirety. During oral argument, attorney Paul Clement, who was appointed amicus by the court to argue for the CFPB’s structure because the Department of Justice (DOJ) chose not to defend its constitutionality, told justices that a different case involving a contested removal would be the proper context to address a dispute over the president’s removal authority.

“The parties are in violent agreement that the for-cause provision is unconstitutional,” Clement said. “Why doesn’t the government give the petititoner what it wants and drop the CID? Aw, there’s the rub. The CFPB does not want the CID dropped.”

Clement, who did not offer a proposed remedy under any severability scenario, also argued that the court lacked jurisdiction to issue an advisory opinion.

Solicitor General Noel Francisco reiterated the DOJ’s new stance that the for-cause removal provision of the Consumer Financial Protection Act was unconstitutional, but that the removal restriction was severable from the rest of the Dodd-Frank Act.

Francisco said 12 U.S.C. §5491(c)(3) can be severed from the rest of the Dodd-Frank Act if  the CFPB was found unconstitutional on the basis of the separation of powers, and the Supreme Court agreed.

Clement said the general rule that describes all Supreme Court cases is that the Congress cannot assign the president’s removal authority elsewhere.

Attorneys for PHH Corp. were the first to argue that the bureau’s single-director, for-cause only removal structure was unconstitutional.

PHH appealed a $109 million judgment for alleged RESPA violations under then-CFPB Director Richard Cordray.

In January 2018, an en banc panel of the D.C. Circuit Court of Appeals reinstated an earlier three-judge panel decision which ruled in favor of PHH Corp. on all aspects of the RESPA allegations. It also upheld the constitutionality of the bureau, going against PHH’s arguments, but the company elected not to appeal that portion of the ruling to the Supreme Court.

While a judge on the D.C. Circuit Court of Appeals, Supreme Court Justice Brett Kavanaugh wrote the original panel decision declaring the CFPB is unconstitutionally structured.

Kavanaugh’s district court opinion stated that “the single-director structure of the CFPB represents a gross departure from settled historical practice. Never before has an independent agency exercising substantial executive authority been headed by just one person.” 

Last year, consumer groups called on U.S. Supreme Court Justice Brett Kavanaugh to recuse himself from the Seila Law case.