Supreme Court to Weigh In on Constitutionality of CFPB

October 21, 2019

The U.S. Supreme Court has agreed to take a case that challenges the constitutionality of the Consumer Financial Protection Bureau, an agency that oversees consumer financing laws, including housing industry policies. The case will determine whether the president's limited ability to fire the director of this independent agency violates the separation of powers. But the ruling could have widespread ramifications, including the impact on other regulators that are run by a single director, such as the Federal Housing Finance Agency, analysts say.

The court will consider the constitutionality of a provision in the Dodd-Frank Act that says the president can fire the CFPB director only “for cause,” which is defined as “inefficiency, neglect of duty, or malfeasance in office.”

The lawsuit the Supreme Court is considering was filed by Seila Law, a California debt relief services firm that alleges the agency’s director has too much power and violates the Constitution’s separation of powers. The law firm has argued that it shouldn’t be required to respond to a CFPB civil investigative demand because the agency’s structure is unconstitutional.

The U.S. House of Representatives has defended the constitutionality of the CFPB with a supporting brief. Other lawmakers have argued that the CFPB has too much executive power. The CFPB originally defended its structure in this litigation until recently under new director, Kathy Kraninger. Kraninger, joined by the U.S. Department of Justice, reversed course and filed a brief urging review of the case stating the agency’s structure is unconstitutional—that the president should be able to fire a CFPB director at will.

The Supreme Court is are being asked to address whether the CFPB can remain even if its structure is found to be unconstitutional based on the severability of the for-cause removal provision. A decision in the case is likely to be announced by the end of June, CNBC reports.

The CFPB is a regulatory agency that was created in 2010, in the wake of the financial crisis, by the Dodd-Frank Act. The CFPB enforces federal consumer financial law and brings legal actions against companies that violate the law. The agency has been curtailing its enforcement activity in recent years. A report by the Consumer Federation of America shows that the CFPB has dropped enforcement activity 80% compared to its peak in 2015.