Supreme Court Strikes Down Consumer Financial Protection Bureau Leadership

The justices ruled that limits on the president's power to oust the CFPB director are not constitutional.

The president has broad authority to dismiss the head of the Consumer Financial Protection Bureau, the Supreme Court ruled Monday in a 5-4 decision along ideological lines.

The court’s narrow ruling in Selia Law v. Consumer Financial Protection Bureau is a short-term win for the financial industry that will nevertheless leave many consumer advocates breathing a sigh of relief. The agency will continue to operate, and the single director who oversees it will not be replaced by a bipartisan board of directors in which Republican appointees would be able to defang Democratic officials.

In the case, justices were asked to determine whether the director of the CFPB can only be removed before the end of their term “for cause” ― meaning some form of documented misconduct ― or if the president should be able to fire the director “at will,” even for nakedly political reasons.

In an opinion written by Chief Justice John Roberts, the court’s five conservative justices held that those restrictions on the president’s authority to remove the head of an executive branch agency are unconstitutional. But the Roberts majority also ruled that those restrictions are “severable” from the broader law that created the CFPB in 2010 ― meaning that once the hiring and firing terms are adjusted, no broader issues need to be addressed.

The political significance of the case has always been much greater than the technical question at its core. Consumer advocates have long worried that the legal attacks on the CFPB would provide conservative justices with an excuse to dismantle the agency outright. Their fears were magnified when the court decided to accept the Selia Law case even though a similar case, PHH Corp. v. CFPB, was also available for review.

As a judge on the U.S. Court of Appeals for the D.C. Circuit, Brett Kavanaugh had already ruled in the PHH Corp. case that the agency is “unconstitutionally structured” ― meaning that now-Justice Kavanaugh would almost certainly have recused himself from the high court’s decision. By selecting Selia Law instead, conservatives on the court bolstered their chances of delivering a similarly aggressive ruling.

Ever since Congress created the CFPB in 2010, the financial industry has been trying to disarm and destroy the agency. Between its inception and President Donald Trump’s inauguration, the CFPB returned nearly $12 billion to defrauded consumers ― money that payday lenders, Wall Street banks and others would very much like to have kept for themselves. And so bank lawyers drafted various legal challenges to the CFPB, hoping to distract the agency with lengthy court battles and ultimately to make it impossible for the agency to function.

In the Selia Law case, a California law firm under investigation by the CFPB attacked the agency’s leadership structure. The agency is run by a single director whom the president appoints and the Senate confirms. Before the end of their five-year term, the director can be removed solely for cause ― specifically, for “inefficiency, neglect of duty or malfeasance in office.”

The financial industry and Republican critics of the agency have long argued that this is an unconstitutional encroachment upon the president’s executive authority, insisting that the president should be able to remove the CFPB director for whatever reason the president wants.

The agency’s supporters have preferred the for-cause benchmark because it makes it more difficult for a Republican president to remove an effective regulator. The director’s five-year term means a leader selected by one president can serve into the administration of a president from another party. The Office of the Comptroller of the Currency and the Federal Housing Finance Administration ― two older financial regulatory agencies ― also have top appointees who can be removed only for cause.

Long-term consumer advocates believe that the ultimate risk is that the agency will not do its job ― a concern that has been quickly borne out under President Trump. The Republican establishment remains ideologically opposed to financial regulation broadly, so a higher concentration of power in the CFPB’s administrative structure will lead to more effective regulation in the years in which it can in fact be effective. In years where Republican appointees hold sway, few bank watchdogs expect the CFPB to be effective.

But the court’s ruling may rebound to favor consumers in November. Current CFPB Director Kathy Kranninger, a Trump appointee, is widely viewed as a defender of the financial industry. If Joe Biden were to win the presidential election, the new, lower legal threshold for dismissal would allow him to oust Kranninger in favor of a more consumer-friendly official.

Zach Carter is the author of “The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes,” available now from Random House.

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