Justices Fret About Sweep of Any Ruling Against CFPB

Justice Brett Kavanaugh told Clement, who was defending the removal provision: “If you win, it’s really the next president that faces the issue. The president may have a different concept of consumer protection and can do nothing about it.”

But Clement said that was no different from the situation with other independent agencies, for example, the Federal Reserve. He said the court has held for decades that Congress can impose for-cause removal.

The Cato Institute’s Ilya Shapiro, who attended Tuesday’s arguments, said in a statement: “After a wide-ranging discussion of constitutional structure and executive power, the conventional wisdom holds: the Supreme Court will likely make the head of the CFPB removable at-will, but not otherwise change the agency. That would certainly be a start, but the constitutional defects with the agency’s design remain.”

Complaints Since Its Creation

The CFPB has been a target of business criticism and legal challenges almost from its beginning. The outcome of the challenge is being closely watched not only for the fate of the consumer agency, but because of its potential significance for the future of the large number of independent agencies created by Congress.

Republican lawmakers and numerous business advocacy groups filed friend of the court briefs backing Seila law. Consumer advocates and Democrat-led states backed the independence of the agency.

Congress created the CFPB as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The bureau can issue rules, conduct investigations and administrative enforcement proceedings and bring enforcement actions in federal court. The concept for the bureau was imagined and pushed by U.S. Sen. Elizabeth Warren, the Massachusetts Democrat and presidential contender.

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

A single director appointed by the president and confirmed by the Senate heads the bureau and serves for a five-year term. The president can remove the director only “for cause,” for example, “inefficiency, neglect of duty or malfeasance in office.” Trump named Kathy Kraninger to lead the agency; she succeeded Richard Cordray, the Obama-era consumer bureau director.

The case at the Supreme Court stems from an investigation by the CFPB into Seila Law, a law firm in California that provides debt relief services, among other services. The bureau issued an investigative demand in 2017 for responses to interrogatories and document requests but the law firm refused to comply.

The CFPB sued Seila Law to enforce its demands. A federal district court ordered the law firm to comply. Seila Law appealed, arguing that the bureau lacked authority to issue its demand requests because the bureau’s structure violated the Constitution’s separation of powers. The constitutional problem, the law firm contended, was the for-cause removal restriction on the president, which encroached on his authority to direct executive branch operations.

The Ninth Circuit rejected Seila Law’s arguments. The D.C. Circuit in an earlier opinion involving a different company, also upheld the bureau’s constitutionality. In that case, PHH v. CFPB, Kavanaugh, then a judge on the appeals court, lambasted the “massive” and “unchecked” power of the agency’s director.