The Supreme Court hears arguments

The CFPB is the brainchild of Massachusetts Senator Elizabeth Warren, created the post-2008 financial crisis. In October of 2019, the Supreme court granted certiorari in the Seila Law v. CFPB which would whether the leadership structure of the Agency was constitutional. The court ordered that the parties to prepare statements and argue a second question: “If the Consumer Financial Protection Bureau [“CFPB”] is found unconstitutional on the basis of the separation of powers, can 12 U.S.C. § 5491(c)(3) [which permits the President to remove the Director of the CFPB only for cause] be severed from the Dodd-Frank Act?”

The 2008 financial crisis almost crippled the American economy. In fact, today, we feel a ripple effect of what it caused and so many businesses and minority and vulnerable groups in the country have never yet recovered. In response to this, Congress passed a Dodd-Frank Act, which included the Consumer Financial Protection Act, (CFPA). This resulted in the creation of perhaps one of the most powerful federal agencies to have ever existed in the Americas’ history. The powers of CFPB stems from the fact that it has a single director, it is the structure it has been following ever since its creation. But that’s not the problem, CFPB’s broad rulemaking and enforcement authority and the fact that the director is well covered from removal except with a reasonable cause make it very powerful. This means that the director of CFPB cannot be removed from office. As a matter of fact, the director can only be removed by the president during his or her five-year term “inefficiency, neglect of duty, or malfeasance in office” - which is a position difficult to prove and which the CFPB has contested so much.

CFPB director only when he or she is inefficient, or when they neglect their duties or malfeasance in office. So far, challenges to this ordinance have been brought forward in courts to the Second, Third, Fifth, Ninth, Tenth, Eleventh and D.C. Circuits.

It has been tough. One of the most significant challenges in this battle occurred before an en banc D.C. Circuit in PHH Corp. v. CFPB. In this case, a majority of the D.C Circuit held that the leadership structure of the agency eas constitutional, a rule that reversed the three-judge panel decision written by Justice Brett Kavanaugh. Kavanaugh would then dissent from the en banc opinión that reversed the original decision. In his dissenting opinion, Kavanaugh held that CFPB’s structure of governance was unconstitutional because the Director’s power and authority were “massive in scope, concentrated in a single person, and unaccountable to the President.”

What is unclear is whether Kavanaugh will recuse himself in Seila Law, especially when he has already given his stand on the matter. However, he is not required to do so.

Ever since its inception, CFPB’s constitutionality has been challenged time and again. What has been in question is the “for-cause” removal provision of the CFPA, which gives the president the authority to remove the The most recent challenge and the one to be reviewed by the Supreme Court was raised by Seila Law. Seila Law involves Seila Law’s refusal to comply with the CFPB civil investigative demand (CID). When CFPB moved to enforce the CID in federal district court, Seila Law argued that CFPB’s structure was unconstitutional, resulting in an unenforceable CID. The legality of CFPB was held before the district court and on appeal to the Ninth Circuit, with the argument that the CFPB’s leadership was constitutional, it has since asserted the new position that the for-cause removal provision is unconstitutional. The Supreme Court has now taken up Seila Law’s petition for Certiorari. SEVERABILITY QUESTIONS

Seila Law’s petition for certiorari is on the issue of whether CFPB’s leadership structure is unconstitutional. What follows next is the question of what happens as the remedy if CFPB is ruled unconstitutional. What happens if the Supreme Court decides to strike-down the CFPA’s for-cause removal provision?

When the supreme court issued certiorari in Seila Law, it sua sponte also ordered that the parties brief and also argue the additional question of whether the for-cause removal provision is severable from the remainder of the CFPA, if the CFPB governance structure is found unconstitutional on the basis of separation.

This is important because if the court holds that the provision is not severable, the decision could strike down CFPA which leads in any number of drastic consequences. For instance, the court could strip the CFPB of the powers it has to enforce or hold that all of the CFPB’s actions to date were ultra vires.

If the provision is found severable, it is likely that the CFPB would proceed with business as usual. Even if the structure is found unconstitutional because the remedy would be to make the CFPB’s Director removable at the will of the president.

This, in fact, is a position that the Agency itself has agreed to cite that its leadership is unconstitutional. For a long time now CFPB has largely relied on the fact that the Dodd-Frank Act contains a severability clause, stating; “if any provision of this Act . . . is held to be unconstitutional, the remainder of this Act . . . shall not be affected thereby.” As such, the CFPB has stated that “a Supreme Court decision holding that the for-cause removal provision is unconstitutional should not affect the Bureau’s ability to carry out its important mission [of consumer protection],” because “if the Court holds the for-cause removal provision unconstitutional, the CFPA should remain ‘fully operative’ and the Bureau would While it is still unclear the position justices will take on this issue, notably, Justice Kavanaugh in his dissent in the en banc review touched on the severability finding that, “[a] s to remedy . . . [t]he Supreme Court’s Free Enterprise Fund decision and the Court’s other severability precedents require that we sever the CFPB’s for-cause provision so that the Director of the CFPB is supervised, directed, and removable at will by the President.”

The National Association of Realtors, the Mortgage Bankers Association and the National Home Builders Association also filed an amicus brief last year which urged the Supreme Court to consider possible disruptions to the economy and the housing market when making its decision.

The groups noted that while it is true that CFPB’s structure might be questionable, invalidating the Agency as a whole may cause turmoil and instability. “Drastic action to invalidate the CFPB could have a broad impact on U.S. consumers extending far beyond the question of bureau leadership,” NAR President Vince Malta said.

This case isn’t an easy one, it is also being watched for the implications it might have on other federal agencies such as the Securities and Exchange Commission and Federal Trade Commission. If the court will overturn the for-cause provision, it would reverse its 1935 decision in Humphrey’s Executor v. the U.S. that upheld a similar standard for the members of the FTC.

“It did not seem after arguments that a majority of the court was eager to do so,” CNBC said.

https://www.paulweiss.com/practices/litigation/ supreme-court-appellate-litigation/news/supremecourt-hears-arguments-on-constitutionality-of-cfpbstructure?id=31520 https://www.lexology.com/library/detail. aspx?g=7461e624-4249-41ad-ba7b-bd0667617a41 https://www.housingwire.com/articles/supreme-courthears-arguments-on-cfpb-constitutionality/ https://www.jdsupra.com/legalnews/supreme-court-todecide-cfpb-s-38035/