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How a Conservative Is Defending Obama's Consumer Protection Bureau

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Paul Clement Paul Clement of Kirkland & Ellis. Photo: Diego M. Radzinschi/NLJ

A leading conservative U.S. Supreme Court advocate on Wednesday urged the justices to uphold the single-director independent design of the Consumer Financial Protection Bureau, arguing that Congress had authority to limit the power of the president to fire the agency’s leader.

The justices are set to hear arguments in the case Seila Law v. Consumer Financial Protection Bureau in March, and the dispute is widely viewed as a potential blockbuster in the constitutional law arena. The case is focused on a consumer regulatory agency long demonized by Republicans on Capitol Hill. The Supreme Court’s newest member, Justice Brett Kavanaugh, has assailed what he called the consumer bureau’s “massive, unchecked power.”

The Supreme Court selected Paul Clement of Kirkland & Ellis to defend the consumer bureau, after the agency itself and Trump’s Justice Department aligned with financial services companies and business advocates to back their arguments against the regulator. The Obama-era Justice Department had defended the agency, whose legacy stems from the Dodd-Frank financial industry reforms of 2010.

“First, and most obviously, there is no ‘removal clause’ in the Constitution,” Clement wrote in Wednesday’s Supreme Court filing. “Beyond the provisions for impeachment, the constitutional text is simply silent on the removal of executive officers, which is hardly a promising basis for invalidating an act of Congress.”

Federal law only allows the president to remove the bureau’s director for cause, not at will. The bureau’s director, who is now Kathy Kraninger, serves a five-year term. Critics of the agency have long argued the bureau’s director is too insulated from accountability. The agency is not set up like multimember federal shops—including the Federal Trade Commission and the U.S. Securities and Exchange Commission—with bipartisan leaders.

The appointment of Clement, who clerked for the late Justice Antonin Scalia, caught some legal observers by surprise. The veteran Supreme Court advocate and former U.S. solicitor general in the George W. Bush administration has widely championed business interests and conservative ideals in major cases in courts across the country. The Kirkland team working with Clement includes partners Erin Murphy and Matthew Rowen, and associate Andrew Lawrence.

The case involves the California-based debt collection firm Seila Law, which is represented at the Supreme Court by Kannon Shanmugam of Paul, Weiss, Rifkind, Wharton & Garrison. Seila Law is resisting a bureau investigation looking at whether the firm engaged in any anti-consumer practices involving the marketing, advertising and sale of debt-relief services.

The U.S. Court of Appeals for the Ninth Circuit ruled in May against Seila’s constitutional arguments and upheld the single-director scheme and removal provision as lawful. Financial regulators such as the CFPB have long been accorded “a measure of independence,” the appeals court said.

Clement noted that Kraninger, the CFPB director, has the power to drop the investigation of Seila Law, which was initiated under the bureau’s first leader, Richard Cordray, who resigned in November 2017.

Kathy Kraninger CFPB Director Kathy Kraninger testifies at House Financial Services Committee. Photo: Diego M. Radzinschi /ALM

“That she has not done so despite her view that she serves at the pleasure of the president makes crystal clear that the enforcement action that forms the basis of petitioner’s injury has nothing to do with the constitutional issue it asks this court to decide,” Clement wrote in his new filing.

Clement also argued: “The theory of the unitary executive appears alive and well in the director’s office. The dispute here is not just unripe, but entirely theoretical. This case simply does not present a proper occasion for this court to resolve the undoubtedly important question petitioner asks it to decide.” He described Seila Law’s challenge as “remarkably weak.”

Congress, according to Clement, “broke no new ground in so structuring the bureau.” He said the agency’s scheme mirrors that of the Office of Special Counsel, Comptroller of the Currency and the Social Security Administration.

Seila Law’s Supreme Court case has attracted more than 20 friend-of-the-court briefs representing a range of interests, including regulated parties, elected officials and legal scholars. Twenty-seven members of the U.S. House, represented by Jones Day‘s Michael Carvin, filed a brief in support of Seila Law.

Mike Carvin Michael Carvin after arguing for the plaintiffs in King v. Burwell. March 4, 2015. Photo: Diego M. Radzinschi / NLJ

“The Consumer Financial Protection Bureau is an unprecedented threat to the separation of powers and to the democratic legitimacy of the federal government. By design, it is one of the nation’s most powerful executive agencies,” Carvin wrote. “It has vast power to regulate the national economy by setting consumer protection policy and enforcing federal law. Under the Constitution, this agency cannot be allowed to operate as a Platonic guardian without any popular control.”

The Supreme Court, in addition to weighing the constitutional issues, is expected to grapple with a remedy—and many of the briefs look at that part of the case. The Credit Union National Association, represented by Julian Ellis Jr. of Brownstein Hyatt Farber Schreck, asked the justices to “shift the responsibility for fixing the bureau’s structure to the political branches.”