On June 29, the Supreme Court issued its decision in Seila Law v. Consumer Protection Financial Bureau (CFPB), holding that a removal restriction limiting the president’s ability to fire and thereby control the director of the CFPB violated the Constitution’s separation of powers. The decision has major implications both for the CFPB and for other independent agencies, including in regulatory challenges and enforcement actions.
The CFPB won, in a sense, because the Court rejected the argument that the removal restriction’s unconstitutionality had to take down with it the entire agency. Instead, the Court severed the restriction from the statute, leaving the agency to function as it was, other than now being subject to greater presidential control. While the president’s new ability to dismiss the director is unlikely to have much practical consequence at present, it does mean that if there is new president come January, that president will be able to appoint a new director to the CFPB to carry out his policy agenda rather than being stuck with President Donald Trump’s pick.
The decision also has implications for CFPB actions up until now, including its Payday Loan rule. The Court implicitly accepted the view that the agency action at issue in Seila Law – a civil investigative demand (CID) – did not on its own have legal force, because the director who issued it was not subject to presidential control. Instead, it recognized that the only possible basis for continued enforcement of the CID was a claimed ratification by an official (an acting director, Mick Mulvaney) whose office was not unconstitutionally insulated from presidential control. That is consistent with the Court’s reasoning in Lucia v. SEC (2018), which held that a separation-of-powers violation deprives an officer of authority to act and thereby renders invalid that officer’s actions taken prior to the defect’s being cured. Accordingly, any past actions undertaken by the CFPB are likely subject to vacatur, absent a valid ratification or waiver of the separation-of-powers objection. (Following Lucia, which held Security and Exchange Commission [SEC] administrative law judges subject to the appointment procedure of the appointments clause, courts generally found waiver when the objection was not raised first before the agency.) That should include the Payday Loan rule, which is currently subject to litigation challenging it on (among other issues) separation-of-powers grounds.
Seila Law may also spell a sea change in the law governing “independent” agencies – that is, those that (like the CFPB) are led by officials who cannot be removed at will by the president. Among them are nearly all financial regulators. Seila Law adopts an extremely narrow reading of the two leading authorities recognizing Congress’ authority to protect agency heads through statutory removal restrictions, Humphrey’s Executor v. United States, 295 U. S. 602 (1935), and Morrison v. Olson, 487 U. S. 654 (1988). Humphrey’s Executor’s approval of removal restrictions, it states, is limited to agencies that act as “mere legislative or judicial aid[s]” and does not approve independence for agencies that “possess the authority to promulgate binding rules,” “issue final decisions awarding legal and equitable relief in administrative adjudications” or have “the power to seek daunting monetary penalties against private parties on behalf of the United States in federal court.” And Morrison, it states, is limited to inferior officers (i.e., not agency heads) exercising “limited” duties.
Taken at its word, this narrow view of Humphrey’s Executor and Morrison would not support the independent status of agencies like the SEC (assuming that it is independent), FTC, the Federal Election Commission, the Commodity Futures Trading Commission, the Consumer Product Safety Commission and many others. Instead, under Seila Law’s logic, such agencies exercising executive power independent of the president have “no place in our constitutional structure.” The actions of all of these agencies are now subject to challenge for improper insulation from presidential control. That includes regulations promulgated by these agencies, as well as enforcement actions.
While it may take years for such challenges to bear fruit (if they do at all), only those who properly raise the insulation issue will obtain the benefit of future decisions building on Seila Law. The only thing that can be predicted with certainty is that parties that fail to preserve this point – particularly in agency adjudications – will lose out if and when other independent agencies fall.