By Charlene Crowell
A June 29 U.S. Supreme Court split decision represents a major setback to both the Consumer Financial Protection Bureau (CFPB) and the consumers who have come to rely upon the agency. Since 2010, more than 25 million consumers were helped by the agency’s efforts that returned over $11 billion.
Although the case known as Seila Law v. Consumer Financial Protection Bureau was argued on March 3 of this year, its origins date back to 2017 when Seila Law, a California-based debt relief firm, asked the CFPB to set aside a civil investigative demand (CID) that sought information to determine whether it was engaged in illegal debt relief practices.
CFPB declined to set aside the CID and turned to a California federal court to pursue its interests. In response, Seila Law restated its challenge of the independence of the agency’s Director who could only be removed by a President for cause, seeking to have the entire agency abolished as unconstitutional.
The Supreme Court’s 5-4 decision refuted CFPB’s hallmark: its independent Director. By allowing for an agency Director to be removed for any reason, it now becomes possible for partisan interests to influence whether or not a full, 5-year term of office enshrined in the law will occur, or that powerful corporations will be held accountable.
The Court majority argued that CFPB is “unique.” “The CFPB Director has no boss, peers, or voters to report to,” wrote Justice Roberts in the majority opinion and was joined by Associate Justices Sam Alito, Neil Gorsuch, Brett Kavanaugh and Clarence Thomas.
“Yet the Director wields vast rulemaking, enforcement, and adjudicatory authority over a significant portion of the U.S. economy. The question before us is whether this arrangement violates the Constitution’s separation of powers. We therefore hold that the structure of the CFPB violates the separation of powers,” continued the Chief Justice. “The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will.”
The creation of an independent consumer agency was the legislative intent defined in the Dodd-Frank Wall Street Reform Act. Enacted in the aftermath of the worst financial crisis since that of the 1930s Great Depression, CFPB assumed direct responsibility for financial oversight and enforcement on a range of consumer issues that included mortgages, small dollar loans, student debt, credit cards and more.
This agency authority included the rights to conduct investigations, issue subpoenas and civil investigative demands, initiate administrative adjudications, prosecute civil actions in federal court, and issue binding decisions in administrative proceedings.
The dissenting opinion written by Justice Elena Kagan was joined by Associate Justices Ruth Bader Ginsburg, Stephen Breyer, and Sonya Sotomayor.
“Throughout the nation’s history, this Court has left most decisions about how to structure the Executive Branch to Congress and the President, acting through legislation they both agree to. In particular, the Court has commonly allowed those two branches to create zones of administrative independence by limiting the President’s power to remove agency heads. If precedent were any guide, that provision would have survived its encounter with this Court—and so would the intended independence of the Consumer Financial Protection Bureau.”
“The Court today fails to respect its proper role,” continued the dissenting opinion. “It recognizes that this Court has approved limits on the President’s removal power over heads of agencies much like the CFPB. Agencies possessing similar powers, agencies charged with similar missions, agencies created for similar reasons. Congress and the President established the CFPB to address financial practices that had brought on a devastating recession and could do so again. Today’s decision wipes out a feature of that agency its creators thought fundamental to its mission—a measure of independence from political pressure.”
It is noteworthy that while the case was under Supreme Court review, the current CFPB Director made no effort to explain or defend the agency.
In the remaining few months in the current Congress, consumer advocates must now heighten their watchful role to ensure that as many other agency responsibilities can be preserved and pursued as legislatively intended.
Many reacted swiftly and directly.
“Though the consumer bureau remains intact, it is worrisome that the Court weakened its political independence from the preferences of any one administration or the political pressure of large financial institutions,” said Diane Standaert, Director of the Hope Policy Institute, a nonprofit focused on underserved communities of color and other low-income households. “As laid bare by COVID, the underlying disparities in access to safe financial services create the foundation for disparities in economic opportunity, particularly for communities of color.”
“The CFPB was created after the Great Recession to protect Americans from unscrupulous businesses that have too much power to wreak havoc on the public,” said Ed Mierzwinski, U.S. PIRG Education Fund’s Senior Director of Federal Consumer Programs. “Now, the Supreme Court has agreed with the CFPB’s Director, who actively worked with the Trump administration and a debt collection law firm, of all things, to undermine the Bureau’s independence from politically-connected special interests.”
“The Seila decision therefore leaves the CFPB intact but weakens the Director’s independence, making it more likely that the Director will hesitate to cross the financial industry players that have the ear of the President — as has happened repeatedly under the current leadership of the CFPB,” noted Lauren Saunders, the Associate Director of the National Consumer Law Center.
“We have seen in this Administration how agency heads who dare to express independent views have been short-lived, and it is unfortunate that the consumer watchdog has lost the critical independence that Congress gave it when addressing the fallout from the 2008 financial crisis,” added Saunders. “Nonetheless, the CFPB survives as an agency with the rest of its critical consumer protection tools intact, and it will be up to the current and future CFPB directors to resist political pressure to favor corporations over consumers.”
“The Supreme Court’s decision to defang the CFPB’s for-cause removal provision will render the agency less effective and leave consumers vulnerable to bad actors on Wall Street,” said Will Corbett, Litigation Director with the Center for Responsible Lending.
“Predatory lenders and their allies in Congress have consistently tried without merit to weaken CFPB’s independence for political reasons. Today, the majority of the U.S. Supreme Court has joined in that effort, ensuring financial damage for consumers for years to come,” Corbett concluded.
Charlene Crowell is a Senior Fellow with the Center for Responsible Lending. She can be reached at [[email protected]].