Supreme Court Rules That the Removal Standard for the CFPB Director is Unconstitutional

On June 29, 2020, the Supreme Court ruled 5-4 that the standard for removing the Consumer Financial Protection Bureau (CFPB) director, as specified in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), is in violation of the President’s Article II removal power. In the opinion, which was authored by Chief Justice John Roberts and joined by Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, and Brett Kavanaugh, the Supreme Court considered the Dodd-Frank Act’s standard for removing the CFPB director, which only allows removal by the President “for inefficiency, neglect of duty, or malfeasance.” Rather than strike down the CFPB entirely, however, the Court found that the “for-cause” removal provision is severable from the Dodd-Frank Act’s other statutory provisions establishing the CFPB, effectively allowing the President to remove the director at will. This ruling may open the door to Congressional efforts to alter the agency’s single-director structure, which has been controversial since the agency was founded.

The CFPB was established in 2010 through the Dodd-Frank Act. In that legislation, Congress gave the CFPB broad powers to “implement” and “enforce” a number of consumer financial protection laws[1] to “ensur[e] that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive.”[2] This included broad enforcement powers, including the ability to issue civil investigative demands.[3] The case decided by the Court – Seila Law LLC v. Consumer Financial Protection Bureau – originated in the U.S. District Court for the Central District of California in 2017, after the CFPB issued a civil investigative demand to determine if law firm Seila Law LLC had “engag[ed] in unlawful acts or practices in the advertising, marketing, or sale of debt relief services.”[4] Seila Law refused to comply with the demand and alleged that the agency’s for-cause removal provision violated the constitutional separation of powers. Both the Central District of California and the Ninth Circuit Court of Appeals disagreed.[5]

On review, the Supreme Court reversed and vacated the determination of the Ninth Circuit, finding that the standard for removing the CFPB director violated the separation of powers under the Constitution. Specifically, the Court found that the “single-director structure” of the CFPB contravened the Constitution’s set of checks and balances between the legislative, executive, and judicial branches because the director is “accountable to no one” due to the for-cause removal provision. Other features of the CFPB’s director that the Court found potentially constitutionally problematic included the five-year CFPB director term and the fact that the CFPB does not receive funds through the congressional appropriations process. However, the Court held that the constitutional defect could be cured by removing the for-cause removal provision. Justices Elena Kagan, Ruth Bader Ginsburg, Stephen Breyer, and Sonia Sotomayor dissented.

After years of debate regarding the constitutionality of the CFPB and calls from many stakeholders for the CFPB to be reformed, the Supreme Court’s decision confirms that the CFPB will continue with its business and that its director will be accountable to the President of the United States. In light of this decision, Congress could possibly modify the leadership structure of the CFPB to align its structure with the multi-Commissioner structures found at other agencies, such as the Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC). Indeed, without such a change, a likely result of this decision will be a return to more aggressive enforcement and rulemaking during a future administration with different priorities.  

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Wiley’s attorneys have extensive experience with consumer protection matters in financial services and other areas, involving the CFPB, FTC, state Attorneys General, and other regulators. Please contact any of the authors for further information.

[1] This included the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and the Truth in Lending Act.

[2] 12 U.S.C. § 5511(a).

[3] Id. §§

[4] 2017 WL 6536586, *1 (CD Cal., Aug. 25, 2017); 12 U. S. C. §5562(c)(1).

[5] 923 F. 3d 680 (9th Cir. 2019).

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