Last Monday, in Seila Law v. CFPB, the U.S. Supreme Court held that the structure of the CFPB, with a single-director who the President could not remove without cause, violates the separation of powers mandated by the U.S. Constitution. The decision allows the CFPB to continue to operate but effectively provides that the Director will henceforth be removable by the President at will.
The decision has a number of immediate consequences:
First, it is clear that the President has the authority and power to remove the incumbent CFPB Director and appoint a new director at will. This means that if Joe Biden is elected in 2020, he will not need to wait until the expiration of Director Kraninger’s current term in December 2023 to appoint a director more attuned to his regulatory philosophy.
Second, a principal argument made by the payday lending industry in its Texas federal court lawsuit challenging the CFPB’s Rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans has now been conclusively established. Thus, Seila Law provides a strong argument for the industry in its lawsuit against the CFPB and an additional justification for the CFPB to rescind the mandatory underwriting provisions. While rescission of the mandatory underwriting provisions could still be challenged, the CFPB would have a powerful additional defense to any such challenge. Barring an injunction against a rescission of the mandatory underwriting provisions, any future CFPB director inclined to take a different approach to regulating the payday lending industry would almost certainly need to restart the rulemaking process anew.
Of course, in addition to its mandatory underwriting provisions, the Rule also contains payment provisions. In our view, expressed in previous blogs and in letters to the CFPB, these provisions also have serious shortcomings, although Director Kraninger has not (yet) sought to repeal or modify them. Seila Law throws these provisions into question as well. We submit that the safest (and best) course for the CFPB with respect to the payment provisions would be to first reconsider their necessity and advisability. If the CFPB continues to believe they are largely worthwhile, it should initiate a new rule-making to maximize the potential benefits and minimize burdens and technical problems.
Third, while the prepaid rule may be distinguishable from the Rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans insofar as the prepaid rule has gone into effect and was adopted by former Acting Director Mulvaney, who was removable by the President without cause, the Seila Law decision has buttressed PayPal’s challenge to the prepaid card rule.
Other consequences of the decision are less clear. Unresolved questions include the following:
- Apart from the prepaid rule, are some or all rules previously adopted by the CFPB at risk or can they be preserved from invalidation by the “de facto officer” doctrine and/or potential ratification by Director Kraninger?
- What impact will the decision have with respect to ongoing rule-making, such as the CFPB’s proposed debt collection regulation?
- What impact will the decision have on the CID issued to Seila Law and other ongoing enforcement proceedings? Can (and will) Director Kraninger simply ratify prior actions taken by her and and/or her predecessors to avoid this issue?
- Can (and will) any financial services companies subject to existing CFPB consent orders and settlements now collaterally attack their consent orders?
- Does the Supreme Court’s decision to sever from the statute the unconstitutional requirement of for-cause termination suggest how it will address any severance questions in other unconstitutional statutes? For example, if the TCPA’s exemption of communications relating to government debt is held to be unconstitutional, which is the issue pending before the Supreme Court in the Barr case and which the litigants all but conceded was the case at oral argument, does Seila Law suggest that the Court is likely to sever the government debt exemption from the larger TCPA or will it require the Court to strike some or all of the statute to avoid further restricting commercial speech?
- How will the decision affect other independent U.S. Government agencies, if at all?
The dust has not yet cleared but consumer financial services and administrative law lawyers throughout the country will certainly be pondering these issues over the Independence Day holiday and for weeks to come.