Politics

Supreme Court looks likely to weaken Consumer Financial Protection Bureau but leave it standing

Share
Key Points
  • The Supreme Court looked likely to weaken the Consumer Financial Protection Bureau, but leave it standing, as the justices heard oral arguments Tuesday in a major business regulation case.
  • The case concerned whether the regulatory agency established in the wake of the 2008 financial crisis was structured unconstitutionally. 
  • The bureau has come under sustained legal attack from conservatives since it was established nearly 10 years ago after being envisioned by Elizabeth Warren
Kathy Kraninger, director of the Consumer Financial Protection Bureau, prepares to testify at a House Financial Services Committee hearing titled "Putting Consumers First? A Semi-Annual Review of the Consumer Financial Protection Bureau," in Rayburn Building on Thursday, March 7, 2019.
Tom Williams | Getty Images

WASHINGTON — The Supreme Court looked likely to weaken the Consumer Financial Protection Bureau, but leave it standing, as the justices heard oral arguments Tuesday in a major business regulation case.

The case concerned whether the regulatory agency established in the wake of the 2008 financial crisis was structured unconstitutionally by giving too much power to its director.

Under the legislation that established the bureau, the head of the CFPB, who serves a five-year term, may only be removed by the president for "inefficiency, neglect of duty, or malfeasance in office."

The justices sparred on Tuesday over whether that removal provision placed an unconstitutional burden on the president's ability to exercise his executive power and, if so, whether the provision could be severed from the rest of the legislation while leaving the CFPB otherwise in place. A decision is expected by the end of June. 

The top court upheld a similar for-cause removal standard for members of the FTC in the 1935 case Humphrey's Executor v. United States and for independent counsels in the 1988 case Morrison v. Olson.

The bureau has come under sustained legal attack from conservatives since it was established nearly 10 years ago after being envisioned by Sen. Elizabeth Warren, a Democratic presidential candidate, while she was a professor at Harvard Law School.

The regulator oversees consumer financial markets like credit cards and home mortgages. It returned nearly $12 billion to consumers through 2017, but has sharply curtailed enforcement actions under President Donald Trump. 

Chief Justice John Roberts, viewed as the swing justice in the case, largely avoided the question of severability and suggested that for-cause removal wasn't that high a bar to meet.

"Just take inefficiency," Roberts said. "The president might determine that a particular approach of the agency to consumer protection was not as efficient as another approach. And I don't know why you couldn't say that that's a ground of efficiency."

But Roberts did take aim at the agency's funding, which largely comes from the Federal Reserve System rather than Congress, another element of the bureau's independence which had come under scrutiny. 

The CFPB case was being closely watched in part because of potential implications it could have for other independent agencies such as the Federal Trade Commission, the Securities and Exchange Commission and the National Labor Relations Board, particularly if Humphrey's Executor were to be overturned. It did not seem after arguments that a majority of the court was eager to do so, however.

Justice Brett Kavanaugh, who wrote as a federal appeals court judge that he believed the agency director had too much independence, did not give any hints that his view had changed. While sitting on the U.S. Court of Appeals for the D.C. Circuit, Kavanaugh once said that the director of the CFPB was, except for the president, the "single most powerful official in the entire U.S. Government, at least when measured in terms of unilateral power."

But Kavanaugh also seemed to maintain his view that the for-cause removal provision could be stripped from the legislation without crippling the agency entirely. Kavanaugh noted that the legislation that created the bureau included a clause that indicated that the rest of the law should remain standing if any part of it is found to be unconstitutional. 

"You mentioned we would be rewriting the Dodd-Frank act," Kavanaugh said to Kannon Shanmugam, a managing partner at the law firm Paul Weiss who argued for the elimination of the CFPB. "But wouldn't we be rewriting it by ignoring the text of the severability clause?"

Shanmugam responded that the clause was "boilerplate" and that the legislation also described the CFPB as "independent."

Justices Neil Gorsuch and Samuel Alito, conservatives who have expressed skepticism of the power of federal agencies, seemed particularly disposed to weakening or doing away with the CFPB.

Alito suggested the severability clauses like the one that Kavanaugh cited were not always dispositive, while Gorsuch griped about the potential for for-clause removal provisions applying to members of the Cabinet.

At one point, Gorsuch's exchange with the court-appointed defender of the CFPB, Paul Clement, a solicitor general under former President George W. Bush, grew testy, with Gorsuch warning the veteran Supreme Court attorney to "avoid disparaging" Solicitor General Noel Francisco, one of the two attorneys arguing for the other side. 

Francisco argued in favor of abolishing the for-cause removal restriction but not for eliminating the entire CFPB. The latter position was held by Seila Law, the California law firm that brought the case after it was targeted by the CFPB as part of an investigation. Seila Law was represented in court by Shanmugam. 

The court's four liberals seemed inclined to side with the CFPB, which was defended by Clement as well as Douglas Letter, general counsel to the Democratic-controlled House of Representatives. 

Justice Elena Kagan compared removal to a "nuclear bomb," and said there were many mechanisms outside of removal with which a president could control an independent agency.

Letter later pursued the argument, noting that presidents have "all sorts of ways that they influence agencies."

"Sometimes you might have a situation where a president convinces a Supreme Court justice to leave that post," he said. 

Kagan seemed to direct some of her remarks at Roberts, with whom she sharply disagreed last term in a case over partisan political gerrymandering. Roberts, writing for the court, wrote that such gerrymandering could not be resolved by federal courts but was instead better left to the political branches. 

Discussing the for-cause removal provision, Kagan noted that "this is a Constitution that doesn't say anything about removal. It does not say anything about for cause or at will or anything else." 

"Why don't we just leave it to the political branches that actually know about these things?" she wondered aloud. 

Justice Ruth Bader Ginsburg called the for-cause removal provision a "very modest restraint."

Justice Sonia Sotomayor said that "for over 200 years" the court has waited for disputes between the president and a department head whom he or she wants to fire in order to resolve questions about removal standards.

Justice Stephen Breyer, for his part, bristled at the suggestion from Francisco that the court could eliminate the CFPB's for-cause removal provision without overturning Humphrey's Executor because the 1935 case dealt with multimember commissions rather than single-director-led agencies.

Breyer acknowledged that such a standard was clear, but questioned its "workability."

Ginsburg said that it appeared the president could be even more restrained by a multimember commission than by a single director.

"It seems the president is hemmed in even more if, for every one of those people, he can't remove them at whim," she said. "I don't understand why it doesn't go the other way."

The case is Seila Law v. Consumer Financial Protection Bureau, No. 19-7.