Supreme Court to Decide Constitutionality of the CFPB

The Supreme Court has granted certiorari to hear a challenge to the constitutionality of the Consumer Financial Protection Bureau (CFPB).  While the CFPB won in the Ninth Circuit, the agency has since changed its mind and now agrees that its structure, which makes the single director of an independent agency removable only for cause, is unconstitutional, and also asked the Court to grant certiorari.  With the parties in agreement that the CFPB is unconstitutional as currently structured, the Supreme Court appointed Paul Clement to defend the Ninth Circuit’s decision as an amicus, and in its order granting certiorari directed the parties to brief and argue the additional question of whether the for-cause removal provision can be severed from the Dodd-Frank Act that established the CFPB.

At stake is not just the future of the CFPB, but all the work it has done so far.  The CFPB told the Supreme Court that after the removal provision is severed it will remain “fully operative” and any actions taken by its unconstitutionally appointed director could be ratified by a properly removable head of the agency.  If the Supreme Court disagrees, the regulatory changes the CFPB brought to mortgage lending and financial institutions may be invalid, as well as the forward-looking conduct provisions that the CFPB built into settlements of enforcement actions.

Meanwhile, the CFPB continues to investigate and bring enforcement actions, putting its targets in a position where they must decide how to treat actions authorized by a director who believes herself to be unconstitutionally insulated from removal.  As the CFPB itself told the Supreme Court, “Until this Court resolves the constitutionality of the Bureau’s structure, those subject to the agency’s regulation or enforcement can (and often will) raise the issue as a defense to the Bureau’s efforts to implement and enforce federal consumer financial law.”  Depending on what parties predict the outcome will be at the Supreme Court, the pending case could be used as leverage in negotiations, a reason to stay any action, or a justification for a complete refusal to cooperate.

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