CFPB’s Structure Found Unconstitutional, But Agency Will Survive

The Supreme Court in Seila Law LLC v. Consumer Financial Protection Bureau held that the structure of the Consumer Financial Protection Bureau (“CFPB”) violated the separation of powers, but stopped short of finding the entire agency unconstitutional and instead held the CFPB could live on with a director who was removable at will by the President.

The Court reasoned that the CFPB’s “unique structure” was unconstitutional because the agency was “vested with significant executive power” but was led by a single director who was, given that he or she was removable by the President only for cause rather than at will, “accountable to no one.”  While four justices (Justices Kagan, Breyer, Ginsburg, and Sotomayor) dissented on the merits of the constitutional question, they joined three members of the majority (Justices Roberts, Alito, and Kavanaugh) in concluding that the for-cause removal provision could be severed from the Dodd-Frank Act that established the CFPB.  Accordingly, the CFPB will live on and have the same enforcement and rulemaking powers, but with a director removable at will.

The fate of ongoing enforcement actions—including the civil investigative demand (“CID”) issued to Seila Law LLC that was at issue in the case—and of forward-looking conduct provisions that the CFPB has included in past settlements remains unclear.  The Court remanded the case to determine whether the CFPB had effectively ratified the CID to Seila Law by seeking to enforce it while the agency was headed by an acting director, who was removable at will.  Seila Law argued the CID could not be enforced at all because it was initially issued by a director unconstitutionally insulated from removal (Justices Thomas and Gorsuch, concurring in the judgment, agreed).

Future CFPB actions will be constitutional, but the Court’s decision leaves ongoing enforcement actions—made when the agency was unconstitutionally structured—in limbo, pending the lower courts resolution of whether the CFPB effectively ratified actions taken by an unconstitutional director.

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