The Supreme Court on Monday ruled to limit the independence of a watchdog agency that was created to combat unfair and deceptive practices against consumers in the wake of the 2008 financial crisis.
The court invalidated the leadership structure of the Consumer Financial Protection Bureau, saying it violated the separation of powers because the President is restricted from removing the director, even if they have policy disagreements.
The ruling is a victory for the Trump administration and conservative groups who are trying to rein in the power of independent agencies, and a loss for those who said the agency needed its independence to serve as a watchdog in favor of the consumer.
Congress established the CFPB in the wake of the 2008 financial crisis with a mandate that it would be led by a single director, serving a five-year term, who could only be removed by the President for “inefficiency, neglect of duty or malfeasance.”
In a 5-4 decision, the court struck down the single-member director structure, but a 7-2 majority held that the single-member provision can be severed from the rest of the statute creating CFPB, allowing the work of the agency to continue.
“The CFPB Director has no boss, peers, or voters to report to. Yet the Director wields vast rulemaking, enforcement, and adjudicatory authority over a significant portion of the US economy,” Chief Justice John Roberts wrote in the court’s opinion. “The CFPB’s single-Director configuration is also incompatible with the structure of the Constitution, which – with the sole exception of the Presidency – scrupulously avoids concentrating power in the hands of any single individual.”
Democratic Sen. Elizabeth Warren, who conceived the agency and is its staunchest defender in Congress, expressed her dismay at the Supreme Court’s decision.
“They just handed over more power to Wall Street’s army of lawyers and lobbyists to push out a director who fights for the American people,” Warren wrote on Twitter. “Even after today’s ruling, the (CFPB) is still an independent agency. The director of that agency still works for the American people. Not Donald Trump. Not Congress. Not the banking industry. Nothing in the Supreme Court ruling changes that.”
Roberts’ opinion on the case could pave the way for the Supreme Court to hear future cases on the restructuring of federal agencies.
“Today’s decision reflects a significant step away from the idea of independent executive branch agencies,” said CNN Supreme Court analyst Steve Vladeck, a professor at the University of Texas School of Law. “Although the court limited its holding to whether a single director of an independent agency could be protected from being fired by the President for any reason, its analysis makes clear that a majority of the current Justices are skeptical of any independence within the executive branch – which could open the door to even broader and more significant challenges to older – and less controversial – agencies going forward.”
Formation of the CFPB
The CFPB was the brainchild of Warren when she was a professor at Harvard Law School.
It works behind the scenes to monitor the practices of lenders, debt collectors and credit rating agencies. Soon after its creation, the CFPB created new standards for the mortgage market. It also collects complaints from consumers and helps them get responses.
The CFPB may be best known for exposing widespread fraud at Wells Fargo where employees had secretly opened millions of fake bank and credit card accounts in customers’ names. The bank was ordered to pay money back to victims who were charged fees on those ghost accounts. Then, in 2018, the CFPB hit Wells Fargo again with a $1 billion fine, levied in conjunction with the Office of the Comptroller of the Currency for forcing customers into car insurance and charging mortgage borrowers unfair fees.
But it has been a lightning rod, pitting big banks and financial companies fighting burdensome regulations they say slows growth against those who say it is a vital check on Wall Street. The bureau’s practices have been attacked, especially by some Republicans who argue that it has too much power – and that it overlaps with other federal agencies like the Federal Trade Commission and the Office of the Comptroller of the Currency.
Under Trump, it’s moved to roll back some regulations on payday lenders and a ban on forced arbitration clauses.
Its first director, Richard Cordray, battled endless calls for his firing after Trump took office in 2017. He remained at the helm until November of that year, stepping down several months before his term was set to end. In the interim, Trump appointed Mick Mulvaney, who previously had pushed to abolish the agency as a member of Congress.
A controversial structure
At issue before the court was the single director leadership structure of the CFPB. Critics, including the Trump administration, the current director Kathleen Kraninge and a law firm fighting a CFPB-led investigation argued that the director is unconstitutionally insulated from removal, because the President cannot remove the director at will.
Such a structure, the argument goes, encroaches on the President’s authority over the executive branch. Supporters of the CFPB, on the other hand, said the bureau needs independence and discretion to protect consumers.
The challenge was brought by Seila Law, a law firm that helps individuals resolve their debts, which was involved in a CFPB investigation. Kannon K. Shanmugam, a lawyer representing the law firm, says his client declined to turn over documents requested by the agency arguing that the CFPB is unconstitutionally structured, wielding an outsized “enormous power over American businesses, American consumers and the overall US economy.”
The Trump administration agreed that the single director structure is invalid and violates the separation of powers.
“This case concerns whether Congress may restrict the President’s ability to remove the single principal officer of an agency exercising substantial executive power,” Solicitor General Noel Francisco argued in court briefs, concluding: “It may not.”
The administration suggested, however, that the CFPB should continue, but the court should sever the part of the law that says the President can only remove the director “for cause” and not “at will.”
Because no party supported the current structure of the agency, the justices appointed one of the best appellate lawyers in the country – former Solicitor General Paul Clement – to do so. As a threshold matter, Clement argued that the court should sidestep the weighty issues of the case and take available off-ramps. One avenue concerned the fact that Kraninger, the current director of the CFPB, does not dispute that she should be removed at will if the President disagrees with her decisions.
“This case presents a remarkably weak case for invalidating an Act of Congress,” Clement said, suggesting the court should wait to decide the issue when there is a director who is at odds with the President.
This story has been updated with additional developments from the court.