What’s At Stake As CFPB ‘Constitutionality’ Gets SCOTUS Hearing

Super Tuesday and the ongoing presidential contest dominate the headlines today, but in the marble halls of Washington, DC, there is a contest brewing of another sort – perhaps with longer-lasting implications for financial services than who will occupy the Oval Office through 2024.

Today, the Supreme Court will hear arguments about the structure of the Consumer Financial Protection Bureau (CFPB), which traces its genesis to the previous (Obama) administration.

The agency was created by Congress after the financial crisis threatened the U.S. (and global) economy a decade ago. In its present incarnation, it is led by a single director who serves a five-year term. That director can be removed by the resident for cause – specifically, “inefficiency, neglect of duty or malfeasance.”

One on side is the Trump administration and a law firm, Seila Law, which is contesting a CFPB investigation that claims the current structure gives the director too much power. As CNN reported on Tuesday (March 3), two of the recent Trump appointees to the bench, Brett Kavanagh and Neil Gorsuch, both conservatives, have sought to roll back various agencies’ powers.

Drilling down a bit, Seila Law, a firm focused on debt resolution, has said it would not turn over documents requested by the CFPB, because the Bureau’s very structure is unconstitutional. That view is shared by Solicitor General Noel Francisco, who has stated that Congress cannot restrict the ability to move an officer of an agency – including the head of the CFPB. The House of Representatives is arguing in support of the CFPB.

Last week, The Wall Street Journal reported that “it is unlikely the court would say the entire agency is invalid. The Trump administration argues the appropriate fix would be to make the director removable for any reason, a position similar to what Justice Kavanaugh embraced when he served on a federal appeals court.”

On the opposing side, arguing that the structure is indeed valid, Georgetown Professor of Law Adam J. Levitin and a host of co-authors wrote in an amicus brief provided to PYMNTS that the CFPB has sufficient accountability if examined beyond the director removal feature.

According to the brief: “Congress has continuously experimented with the design of administrative agencies, sometimes learning from past disappointments, sometimes adapting features to the particular policy concerns at hand. It is an ongoing and iterative process; as a result, there is no single paradigmatic agency. Instead, different agencies achieve sufficient accountability through various combinations of features.”

The authors go on to state that “accountability must be examined holistically … the CFPB is a highly accountable agency, designed to be insulated both from (1) specific kinds of political manipulations that Congress has deemed harmful to its policy goals and (2) ‘regulatory capture,’ or the concern that regulators become mere instruments of industry rather than the government.” They note, too, that the president has not attempted to remove the CFPB director, and that there is no record of what a removal attempt might look like.

“No feature in isolation says anything about the agency’s overall constitutional accountability,” the authors contend, stating, too, that multi-member commissions exist as only one policy option for Congress – “the Court should not fetishize them.”