Supreme Court Rules CFPB Structure Unconstitutional

After years of debate about the U.S. Consumer Finance Protection Bureau (CFPB)’s legality, the U.S. Supreme Court ruled 5-4 on Monday (June 29) that the Obama-era agency’s structure is unconstitutional — although the body can continue if changed from its current form.

The issue at hand in Monday’s ruling was whether a U.S. president has the power to remove a sitting CFPB director during the agency chief’s six-year term. According to rules Congress structured in 2014, a president doesn’t have that power. The CFPB’s charter holds that the director can only be fired for  “inefficiency, neglect of duty, or malfeasance in office.”

But the court’s five conservative justices ruled on Monday that that violates the U.S. Constitution, which says that “the executive power shall be vested in a president of the United States.”

The court ruled that the phrase guarantees a president the full measure of executive power. As a result, any government official charged with upholding and executing federal law either answers directly to the president or to someone who in turn answers to the president, justices found.

This broad construction of presidential powers is known as the theory of the “unitary executive.” Although it first appeared in a dissent by the late Justice Antonin Scalia, the theory has gained a following among conservative jurists who believe the Constitution limits congressional power to create independent agencies like the CFPB.

The CFPB is one the federal government’s few independent authorities, and unlike other like the Federal Reserve or the Federal Communications Commission, is controlled by a single director. The Fed and the FCC are both governed by multi-member boards.

But Chief Justice John Roberts, writing the court’s majority opinion, noted that the Constitution “scrupulously avoids concentrating power in the hands of any single individual” other than a president, who’s “elected by the entire nation.”

Because a CFPB director’s time in office lasts longer than a president’s four-year term, the person’s power is independent of an elected president — thus creating an unreasonable drain on presidential power, justices ruled.

“An unlucky president might get elected on a consumer-protection platform and enter office only to find herself saddled with a holdover director from a competing political party who is dead set against that agenda,” Roberts wrote.

The ruling marks a final decision for an issue that has made various trips through the courts to determine whether the CFPB as formulated was constitutional.

The issue first came up in regards to an appeal of a CFPB decision against PHH, the New Jersey mortgage lender. Among PHH’s arguments when it appealed the CFPB’s ruling was that the agency’s single-director makeup was unconstitutional, an argument a three-judge appellate panel upheld in 2016. However, that was ultimately shot down by a full 10-judge appellate review.

But the issue came up again in early 2019,when the Supreme Court declined to hear a case brought by Texas lender State National Bank of Big Spring based on the same premise. However, the high court likely only declined to take the case because Justice Brett Kavanaugh recused himself, likely because he had been involved in an earlier ruling in the case before joining the Supreme Court.

But in March, justices elected to take a case called Seila Law LLC v. Consumer Financial Protection Bureau. The court’s 5-4 ruling Monday in that matter was very much in line with what experts were predicting.

“I will be surprised if there aren’t five votes to invalidate the CFPB’s current structure,” The Wall Street Journal quoted University of Illinois Law School dean Vikram Amar as saying when the court decided to hear the case back in March.

However, Monday’s decision doesn’t mark the end of the CFPB, which the court did not declare unconstitutional in toto. The consumer watchdog group will go on, but likely with an adjustment to its leadership structure.

What this will mean for the agency’s immediate future? Experts say likely very little, as the Kathy Kraninger, the CFPB’s current head, was appointed President Donald Trump.

But if we have a new sitting president at this time next year? Monday’s court decision makes it entirely likely there will be a new CFPB director to go with that.