On June 29, 2020, the U.S. Supreme Court issued its ruling in Seila Law LLC v. Consumer Financial Protection Bureau, holding that the CFPB’s leadership structure—with a single director removable only for inefficiency, neglect, or malfeasance—is unconstitutional because it violates the separation of powers. But the Court preserved the Bureau by severing the for-cause removal provision from the rest of the Dodd-Frank Act. The bottom line: the CFPB remains intact, but the President (or the next one) can remove the director of the CFPB for any reason. CFPB Director Kathy Kraninger commented that it is now clear that the agency and its director “are fully accountable to the President.”
As we have reported, the CFPB filed a suit in 2017 against Seila Law, a debt relief services law firm, to enforce a Civil Investigative Demand. In response, Seila Law argued that the structure of the CFPB violates the separation of powers provision of the U.S. Constitution; specifically, the firm argued that Dodd-Frank Act Section 1011(c)(3) (12 U.S.C. § 5491(c)(3)), under which the Bureau’s single director can be removed only “for cause,” is unconstitutional. The statutory provision states that the President may remove the Director only for “inefficiency, neglect of duty, or malfeasance in office.” The CFPB won in the district court in 2017, and again in 2019 on appeal to the U.S. Court of Appeals for Ninth Circuit. Seila Law then filed a petition for a writ of certiorari in the Supreme Court.
The CFPB and the Department of Justice filed a brief with the Court in support of the Seila Law petition. The agencies noted that after the Ninth Circuit’s decision, Director Kraninger had reconsidered the CFPB’s position and decided that the for-cause removal restriction is unconstitutional. Director Kraninger had also directed the Bureau’s attorneys not to defend the for-cause removal provisions in court. The Supreme Court granted certiorari to consider the question posed by Seila Law, and, because the CFPB would not defend the Ninth Circuit’s ruling, the Court appointed separate counsel as amicus curiae to defend the decision of the Ninth Circuit.
Supreme Court Decision
Separation of Powers. The Supreme Court, in a 5-4 majority opinion written by Chief Justice John Roberts, held that the CFPB structure as an independent agency with a single director removable only for inefficiency, neglect of duty, or malfeasance is unconstitutional. The Court noted that it had previously recognized that Congress can impose certain limits on the President’s removal powers, but the Court held that the tenure protections surrounding the CFPB’s single director were an impermissible extension of those limits. In particular, the Court concluded that Humphrey’s Executor, a 1935 decision involving the Federal Trade Commission, permitted Congress to limit a President’s for-cause removal powers for an independent agency with a multi-member leadership balanced along partisan lines, appointed to staggered terms, and performing only quasi-legislative or quasi-judicial functions. The Court concluded that Morrison, a 1988 decision involving the independent counsel statute, permitted Congress to limit a President’s for-cause removal powers with respect to removal of an inferior officer. The Court in Seila Law held, however, that neither case supported removal protection for the director of the CFPB, an agency with a structure that “is almost wholly unprecedented.”
The Court noted that the single director possesses the authority to promulgate rules under numerous consumer financial protection laws; the ability to award relief in administrative proceedings; and the “power to seek daunting monetary penalties” in federal court—all without accountability to a democratically elected President. The Court held that “such an agency has no basis in history and no place in our constitutional structure.” According to the Court, the constitutional structure of the United States “scrupulously avoids concentrating power in the hands of any single individual” and the structure of the CFPB contravenes this system by “vesting significant governmental power in the hands of a single individual accountable to no one.” The Court said that this, alone, is enough to render the Bureau’s structure unconstitutional, but that additional features make the structure “even more problematic”: (1) the director’s five‑year term, which could preclude some Presidents from being able to appoint a director at all; and (2) the fact that the CFPB is funded outside the Congressional appropriations process.
Severability. Although a 5-4 majority held that the CFPB structure was unconstitutional, a separate 7-2 majority of the Court held that the proper remedy was to sever the for-cause removal provisions and leave the rest of the CFPB structure and Dodd-Frank Act in place. The Court noted that the for-cause removal provision is the only “constitutional defect” it found in the CFPB’s structure, and that the remaining Dodd-Frank Act provisions regarding the Bureau’s structure and duties are “capable of functioning independently.” The Court added that its analysis does not preclude Congress from amending the Dodd-Frank Act to establish the CFPB as a multi-member agency.
Director Kraninger now can be removed by the President, at will, at any point in her five-year term, which started in December 2018. At-will removal of the CFPB director will likely result in removal of the CFPB Director with administration changes, which could limit the CFPB’s ability to sustain prolonged rulemaking and enforcement agendas. Moreover, pre-Seila CFPB enforcement actions and regulations may continue to be subject to attack on separation‑of‑powers grounds; the Court’s severability ruling will pose a challenge to such efforts.