The Supreme Court ruled that Congress went too far when it tried to ensure the independence of the Consumer Financial Protection Bureau during a response to the 2008 financial crisis, a decision that will allow a president to fire the agency’s director at will.
While the agency can continue its work, the structure, consisting of a single director who can only be fired for cause, unconstitutionally intrudes on a president’s duty to execute the nation’s laws, Chief Justice John G. Roberts Jr. wrote for the majority.
“In our constitutional system, the executive power belongs to the President, and that power generally includes the ability to supervise and remove the agents who wield executive power in his stead,” Roberts wrote. “While we have previously upheld limits on the President’s removal authority in certain contexts, we decline to do so when it comes to principal officers who, acting alone, wield significant executive power.”
In ruling the way it did, the Supreme Court stopped short of a decision that could have been a major disruption to the enforcement of consumer protection laws. The majority declined to find that the unconstitutional structure means it must eliminate the agency that Congress created in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
And the majority also differentiated the CFPB single-director structure from agencies run by a multimember board or commission, and suggested Congress could do the same with the CFPB.
The challengers to the law had argued that if the court had ended the CFPB, “regulatory and enforcement authority over the statutes it administers would simply revert back to the handful of independent agencies previously responsible for them,” Roberts wrote.
But that shift would “leave appreciable damage to Congress’s work in the consumer-finance arena,” Roberts wrote, since agencies do not have the staff, funding or authority to administer the law’s prohibitions on unfair and deceptive practices in the consumer-finance sector.
“Given these consequences, it is far from evident that Congress would have preferred no CFPB to a CFPB led by a Director removable at will by the President,” Roberts wrote.
An attorney for the House, at oral arguments in January, argued that the House would want the CFPB to continue even though Congress had also given up a powerful oversight tool by putting the agency outside the appropriations process.
The Democrat-led House, in its brief, had told the justices that the text of the law shows that Congress “deemed it more important to unite the CFPB’s regulatory authorities in a single agency than to have them be exercised by officers protected from removal.”
House Republicans, including Minority Leader Kevin McCarthy, had told the Supreme Court in a brief that the whole CFPB section of the 2010 financial regulation overhaul should be dismantled if the for-cause removal language is unconstitutional.
Justice Elena Kagan, in a dissent joined by the three other justices of the court’s liberal wing, would have allowed the structure to continue and criticized the majority for overstepping and “second-guessing” the judgment of the political branches on how best to respond to a crisis.
“Congress and the President established the CFPB to address financial practices that had brought on a devastating recession, and could do so again,” Kagan wrote. “Today’s decision wipes out a feature of that agency its creators thought fundamental to its mission — a measure of independence from political pressure.”
Republicans in Congress have long said that the CFPB should be run by a five-person commission, similar to the Securities and Exchange Commission, and have introduced many bills to that end. They haven’t made a similar push with the Federal Housing Finance Agency, or FHFA, which shared an identical leadership structure with the CFPB.
Monday’s decision could also imperil the FHFA’s structure. Last year, a federal appeals court held the FHFA’s single-director structure as unconstitutional.
Democrats had resisted a commission for the CFPB amid concerns that Republican senators opposed to the agency itself could refuse to appoint board members, which would deprive it of a quorum and restrict its powers.
In the long run, Democrats may look to install a five-member commission, but it’s unlikely that will happen sometime this year, with the legislative schedule truncated by coronavirus and the upcoming elections.
Politically, this decision might benefit Democrats in the short term. If presumptive Democratic presidential nominee Joe Biden wins in November, he’ll undoubtedly remove Trump appointee Kathy Kraninger as director and replace her with someone who will more aggressively enforce the bureau’s ambit.