Supreme Court will hear CFPB constitutionality case
The Supreme Court agreed Friday to take a case challenging the constitutionality of the Consumer Financial Protection Bureau in a move that will determine how much latitude a president has to fire the director of an independent agency.
In agreeing to take the case, the high court identified a narrow path forward, asking the parties to address whether a provision in the Dodd-Frank Act that only allows a president to oust the CFPB director “for cause” is unconstitutional.
The court asked for a response to the question “If the Consumer Financial Protection Bureau is found unconstitutional on the basis of the separation of powers," can the for-cause provision "be severed from the Dodd-Frank Act?”
Ramifications of the case could reach far beyond the CFPB. A ruling against the CFPB could impact other regulators which also are run by a single director, including the Federal Housing Finance Agency.
It's already clear where at least one Supreme Court justice stands on the issue. Before joining the high court, Supreme Court Justice Brett Kavanaugh was part of a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit that ruled the CFPB's single-director structure was unconstitutional.
Rather than declaring the entire agency null and void as a result, the ruling written by Kavanaugh said the proper fix was to strike the “for cause” language in Dodd-Frank. Doing so would allow the president to fire the CFPB director — and arguably the FHFA's as well — at will.
The lawsuit was filed by a California law firm, Seila Law, that claimed it was not required to respond to a CFPB civil investigative demand because the bureau's structure is unconstitutional. The court agreed to hear a motion of the House of Representatives, which filed a brief supporting the CFPB’s constitutionality.
The court also said it will read a brief and set aside oral argument for Alan B. Morrison, a professor and associate dean at George Washington University School of Law, who has argued 20 cases before the Supreme Court.
Morrison said the law firm in the case “doesn’t have standing to raise the issue.” Morrison also said he has volunteered to defend the CFPB’s constitutionality.
The CFPB has recently flipped sides in the case. While it initially defended its structure under Richard Cordray, who was appointed as CFPB director by President Barack Obama, Kathy Kraninger, who was appointed to the post by President Trump, said last month that the president should have more flexibility to fire a sitting CFPB director. Republicans have long wanted a case to reach the high court, arguing the CFPB has too much executive power.
Some lawyers said the CFPB will face fallout from the Supreme Court’s agreeing to take the case with the potential for companies in litigation to ask that any pending litigation against the agency be delayed until the outcome of the high court's ruling.
Richard Hunt, president and CEO of the Consumer Bankers Association, said that whatever the outcome of a Supreme Court ruling, he is still advocating for the CFPB to be led by a commission, not a single director.
“Congress must create a bipartisan, Senate-confirmed commission to lead the bureau,” he said in a press release.