Scotus Finds CFPB Unconstitutional; Director Removable by President at Will
On June 29, the Supreme Court issued its long awaited decision in Seila Law LLC v. Consumer Financial Protection Bureau. At issue in the case was whether the Consumer Financial Protection Bureau’s (“CFPB”) structure with its single director – appointed by the president, confirmed by the Senate, and removable only for cause – was unconstitutional. In its decision, the Court found that the CFPB’s current structure is in fact unconstitutional because it violates the Separation of Powers Act. However, the Court declined to go so far as to invalidate the entirety of the CFPB due to this Constitutional defect and, instead, took the more limited approach of declaring that the Director of the CFPB could be removed by the president at will, similar to other agency heads.
In making this determination, the Court followed the general rule that the unconstitutional provision must be severed unless the statute created in its absence is legislation that Congress would not have enacted. The Court reasoned that, because the Dodd-Frank Act contains an express severability clause, Congress would rather have a CFPB with a Director subject to at-will termination rather than no CFPB at all. The Court noted that Congress retains the ability to change the structure of the CFPB to a multi-member panel or something similar if it so chooses, but the Court only has limited powers when determining the constitutionality of the agency.
While the Court’s decision initially appears to be a victory for the Trump administration, which had argued that the CFPB was unconstitutional, in reality, it may come back to haunt it. Specifically, the immediate impact of the decision will be minimal. The current Director, Kathy Kraninger, is unconfirmed by the Senate and is therefore already removable by the president at will. Moreover, given that Director Kraninger was appointed by President Trump, it is unlikely that he will remove her any time soon. Looking forward, however, the ability of the president to remove the Director at will leaves an incredibly powerful government agency more susceptible to political influence, which could have a long lasting impact on the entirety of the financial services industry. The first reverberations of that impact may be felt this November. If former Vice President Joe Biden defeats President Trump in the election, he will have the ability to dramatically reshape the CFPB by removing Director Kraninger and appointing a new director that may have a more aggressive approach to enforcement and a more adversarial view of the relationship between industry and government.
A copy of the Court’s decision can be found here.