Supreme Court Rules That the CFPB Director Must Be Removable at Will

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The U.S. Supreme Court ruled on June 29 that the Director of the Consumer Financial Protection Bureau (CFPB) cannot constitutionally be subject to removal only for cause, as provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), but must instead be removable at the President’s will. Seila Law LLC v. CFPB, No. 19-7 (U.S. June 29, 2020), arose from a constitutional challenge to the CFPB’s authority to issue a civil investigative demand (CID) for documents and information from a law firm that handled debt relief services. The firm asserted that the single-director structure of the agency, with the director removable only for cause, was a violation of the separation of powers under the Constitution. The district court rejected the argument and was affirmed by the Ninth Circuit.

The Supreme Court agreed with Seila Law and disagreed with the lower courts in a 5 to 4 decision written by Chief Justice Roberts. The Court’s view of the precedents that dealt with cases where the President’s ability to remove officials was limited by law was that “[w]e are now asked to extend these precedents to a new configuration: an independent agency that wields significant executive power and is run by a single individual who cannot be removed by the President unless certain statutory criteria are met. We decline to take that step.”

The Court reviewed the history of the President’s power to remove executive officials from the first Congress forward, finding that the general power to do so was well established and had only been subject to limitations in a few circumstances. A 1935 Supreme Court decision, Humphrey’s Executor v. United States, 295 U.S 602, held that the for-cause limitation on removal of members of Federal Trade Commission was permissible. Other cases held that tenure protections for inferior executive officers were also permissible. The Court distinguished these cases on the basis that the power wielded by the Director of the CFPB, who can promulgate financial regulations without review by any other officer and had issued a $1 billion penalty against a single bank, went far beyond the quasi-judicial and quasi-administrative power of the non-partisan, multi-member FTC in 1935 and was not that of an inferior officer.

The Court found that vesting the power to administer and enforce a wide range of consumer financial laws in a single person contravened the separation of powers in which the undivided executive power is given to a President who is directly accountable to the people: “The CFPB’s single-director structure contravenes this carefully calibrated structure by vesting significant governmental power in the hands of a single individual accountable to no one. The Director is neither elected by the people nor meaningfully controlled (by the threat of removal) by someone who is.”

With respect to the proper remedy, the Court held that it was appropriate to use the Dodd-Frank Act’s severability provision to sever the for-cause requirement from the statute, finding it “clear that Congress would prefer that we use a scalpel rather than a bulldozer in curing the constitutional defect we identify today” since “[t]he provisions of the Dodd-Frank Act bearing on the CFPB’s structure and duties remain fully operative without the offending tenure restriction.”

The case was remanded to the Ninth Circuit to consider whether the CID was validly ratified during the pendency of the litigation by a Director who was subject to the President’s removal authority. The CID had originally been issued by Director Cordray in 2017, then was ratified by Acting Director Mulvaney, who was removable at will. Current Director Kraninger agreed with Seila Law that she was removable at will.

It would appear that the CFPB can moot this issue by Director Kraninger, whose position is now constitutional because her position is at-will by virtue of the Supreme Court’s ruling, expressly ratifying the CID. The same would be true for any other currently pending CIDs and court or administrative actions that are or may be challenged on constitutional grounds, as well as pending rulemaking proceedings: the Director should be able to merely approve the prior determinations to serve CIDs and file enforcement actions, and the staff determinations underpinning the current rules notices, just as Director Cordray ratified all CFPB actions taken by him as acting Director before his appointment as permanent Director was approved by Congress. Previous consent orders should also not be subject to challenge on constitutional grounds because the defendants/respondents all agreed to settle the matter rather than challenge the CFPB’s authority, thus releasing such claims. The Seila Law decision does little to upset the past actions of the CFPB. What it does accomplish is not to burden an incoming President with a prior President’s Director.

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