Another Court Upholds CFPB’s Constitutionality: Does It Matter?

Morgan Lewis
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Morgan Lewis

The US Court of Appeals for the Ninth Circuit on May 6 upheld the constitutionality of the structure of the Consumer Financial Protection Bureau (CFPB). In CFPB vs. Seila Law LLC, a panel of the court determined that the limitation on the president’s authority to remove the CFPB director, other than for cause, did not impede the president’s authority under the US Constitution’s Appointments Clause. Citing longstanding US Supreme Court precedent established in Humphrey’s Executor v. United States, 295 U.S. 602 (1935) (upholding President Franklin Roosevelt’s removal of an FTC Commissioner), and Morrison v. Olson¸487 U.S. 654 (1988) (upholding the Independent Counsel Act as then constituted), the Ninth Circuit panel concluded that the CFPB’s structure is constitutionally permissible.

Under the CFPB’s authorizing statute in the Dodd-Frank Wall Street Reform and Consumer Protection Act, the director is appointed by the president to a single five-year term from which s/he may only be removed for cause (while most senior appointees serve at the president’s pleasure). Additionally, the CFPB is funded by a “call” on the Federal Reserve rather than through congressional appropriation, and the director may promulgate most rules without the president’s approval through the standard Office of Management and Budget (OMB) process.

The director’s insulation from effective oversight first led a panel of the US Court of Appeals for the District of Columbia Circuit to find that its structure was unconstitutional. That panel’s decision, authored by then-judge and now Justice Brent Kavanagh, was vacated by an en banc finding of the circuit that the structure was indeed constitutional. We have written extensively on the progress of that case, which ended before the Supreme Court addressed the issue when the CFPB, under new leadership, dismissed its complaint, thus mooting the structure argument. (Read some of our previous blogs on this topic here, here, here, and here.)

The Ninth Circuit’s opinion is consistent with the DC Circuit’s en banc opinion. Of note is that with the replacement of the CFPB’s first director, Richard Cordray (an appointee of President Barack Obama) by Kathy Kraninger (an appointee of President Donald Trump), the appetite to challenge the removal provision and the CFPB’s constitutionality may have changed. Ms. Kraninger, confirmed in December 2018, will serve through December 2023 if she cannot be removed other than for cause, meaning that her term will extend over two-and-a-half years into the term of what might be a new president, depending on the outcome of the 2020 elections.

Thus, what was once the battleground for the preservation of the CFPB may now be no more than an interesting sideshow on a largely arcane area of Appointments Clause law. Further, with no current split on this issue in the circuits, it becomes less likely that, if appellant pursues this case, that the Supreme Court would grant certiorari.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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