But Solicitor General Noel J. Francisco, representing the Trump administration, told the Supreme Court in a brief last month that new director Kathleen Kraninger “has reconsidered that position.”
That view could find a receptive audience at the Supreme Court. Justice Brett M. Kavanaugh took such a position in a similar case when he was a judge on the U.S. Court of Appeals for the D.C. Circuit.
The issue is that in creating the CFPB, Congress said it was protecting the bureau’s autonomy by giving the director a five-year term and allowing removal only for “inefficiency, neglect of duty, or malfeasance in office.” But the Constitution gives the president the power to remove top executive branch officials for any reason or no reason at all, the challengers say.
The Supreme Court “has consistently recognized that the Constitution empowers the president to keep federal officers accountable by removing them from office,” Washington lawyer Kannon K. Shanmugam told the court in a brief.
“While in limited circumstances the court has upheld the constitutionality of certain multi-member ‘independent’ agencies . . . the court has never upheld the constitutionality of an independent agency that exercises significant executive authority and is headed by a single person.”
In accepting the case, the court added a question: “If the Consumer Financial Protection Bureau is found unconstitutional on the basis of the separation of powers,” can the section of the law regarding the president’s ability to fire the director be severed from the rest of the law?
Shanmugam is representing a California law firm, Seila Law, which objected to the CFPB’s demand for information regarding an investigation of its practices in resolving consumer debt.
With the Justice Department and the agency itself now saying its structure is unconstitutional, the House of Representatives has asked the court to allow it to defend the CFPB.
“This case presents an issue of significant importance to the House: the constitutionality of the for-cause removal protection that Congress enacted to provide the CFPB director with a measure of independence, consistent with the agency’s functions as a financial regulator,” wrote the House’s general counsel, Douglas N. Letter.
The CFPB has been a target of conservatives since its creation. Republicans and banking executives often complained that the bureau was too aggressive and pushed legal boundaries to levy exorbitant penalties. Acting White House chief of staff Mick Mulvaney once called the CFPB a “joke” and co-sponsored legislation to get rid of it.
Warren, now a presidential hopeful, has often cited the bureau on the campaign trail. It returned more than $12 billion to consumers under the Obama administration.
“Big banks and their Republican allies have been trying to kill the CFPB for years, and the Trump administration is hoping the right-wing, pro-corporate Supreme Court will help. I’ve got news for them: Like it or not, the CFPB is constitutional,” Warren said on Twitter.
Mulvaney served as acting director of the bureau for months and launched a broad remake of the CFPB. It has levied fewer and smaller fines under the Trump administration, dropped lawsuits against payday lenders and softened proposed regulations for debt collectors.
Kraninger was barely confirmed as the bureau’s director in 2018.
The bureau was created as part of the crackdown on Wall Street that resulted in the Dodd-Frank Wall Street Reform and Consumer Protection Act. It is part of the Federal Reserve System.
Congress gave the board “all authority” to set rules and guidelines pursuant to federal consumer financial laws and created a new prohibition on unfair and deceptive acts on certain parts of the consumer-finance industry.
Instead of structuring it like the multi-member Consumer Product Safety Commission, Congress created a single director.
There have been numerous challenges to the bureau’s structure, but lower courts have upheld it.
The U.S. Court of Appeals for the D.C. Circuit upheld the bureau’s constitutionality in an en banc decision that produced several opinions, and the U.S. Court of Appeals for the 9th Circuit followed suit in the Seila case.
Judge Cornelia Pillard, writing for the D.C. Circuit majority, noted that the language used for removing the bureau’s director — “inefficiency, neglect of duty, or malfeasance in office” — matched that approved by the Supreme Court in a famous case from the 1930s protecting members of the Federal Trade Commission.
But Kavanaugh, in dissent, said that decision applied only to multi-member commissions, and not the unique single-director structure of the CFPB.
Francisco said the separation-of-powers issue in the case has “broad implications for the president’s ability to supervise the executive branch, and creates uncertainty that undermines the bureau’s ability to fulfill its mission.”
The case is Seila Law v. Consumer Finance Protection Bureau.
Renae Merle and Amy B Wang contributed to this report.