Liberals view Kavanaugh as existential threat to consumer bureau

President Trump’s nomination of Brett Kavanaugh to the Supreme Court has alarmed progressives who fear he could contribute to the dismantling of the Consumer Financial Protection Bureau (CFPB).

Kavanaugh, who serves as a judge on the U.S. Court of Appeals for the District of Columbia Circuit, ruled in 2016 that the controversial watchdog agency’s structure was unconstitutional. The 2-1 ruling provided a major boost to Republican and industry efforts to abolish the consumer watchdog.

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While Kavanaugh’s decision was later reversed by the court, his opinion laid the foundation for other legal challenges to the CFPB’s structure that are making their way through the courts. And his confirmation could create a majority of Supreme Court justices opposed to the CFPB’s design, worrying bureau allies who see Kavanaugh as an existential threat to the agency.

Republicans have been largely critical of the CFPB’s structure, so the bureau’s allies fear that Chief Justice John Roberts and associate justices Samuel Alito, Neil Gorsuch and Clarence Thomas are likely votes against the agency if a case comes before the court.

Sen. Elizabeth Warren (D-Mass.) said Tuesday on Twitter that Kavanaugh showed a “hostility toward consumers” by ruling against the bureau two years ago and is “opposed to the CFPB & corporate accountability.”

“There’s a lot to dislike about Brett Kavanaugh’s record,” said Warren, who helped design the CFPB as an adviser to former President Obama before her 2012 election to the Senate.

The CFPB has been a political lightning rod since the 2010 Dodd-Frank Act established the agency. Bank and financial services industry lobbyists fought against the creation of the CFPB as Congress crafted legislation in response to the financial crisis, and opponents have spent the ensuing years battling the independent agency’s aggressive oversight and regulation.

Democrats and liberal groups have fought to protect the CFPB from President Trump’s efforts to weaken it, and they view Kavanaugh’s nomination as the next battle on that front.

“Judge Kavanaugh has been a reckless and partisan jurist who has always seemed more interested in pleasing Wall Street and the conservative political establishment than he has in defending the Constitution,” said Karl Frisch, executive director for Allied Progress, a liberal group that supports strict financial sector regulation.

“He would be a disaster for consumers and the CFPB if confirmed to the Supreme Court,” Frisch added.

Former CFPB Director Richard Cordray’s strict policing of the financial sector spurred numerous lawsuits against the bureau challenging its steep fines and public scoldings.

The most notable was a lawsuit from mortgage lender PHH.

After being hit with a $109 million penalty in 2013, the company sued the CFPB, arguing that not only was the fine inappropriate, but that the CFPB lacked the authority to levy it because the agency’s structure violates the Constitution.

A statute in the Dodd-Frank law protects the director from being fired for any reason other than neglect of duty or inappropriate conduct.

“That’s sort of the central objection to its constitutionality,” said Barbara Mishkin, a consumer finance attorney at Ballard Spahr LLP.

The PHH case was argued before a panel of the D.C. Circuit Court of Appeals led by Kavanaugh, whose 2016 ruling said the CFPB’s structure infringed on the separation of powers outlined in the Constitution.

He called the CFPB “the first of its kind and a historical anomaly,” writing in the court’s opinion that “the Director of the CFPB is the single most powerful official in the entire U.S. Government,” in some cases more powerful than the president.

Kavanaugh also ruled that the bureau’s director must be fireable at will by the president to restore executive branch authority limited by Dodd-Frank. The Obama administration appealed the decision, and the Court of Appeals reversed Kavanaugh’s ruling on a 6-3 vote.

Nevertheless, Kavanaugh’s initial ruling has been echoed in legal challenges and rulings against the CFPB’s structure.

The appeals courts for the 5th and 9th circuits will soon hear cases challenging the CFPB’s constitutionality using a similar argument to the one Kavanaugh laid out, and a ruling against the agency’s structure in the Southern District of New York borrowed from most of Kavanaugh’s 2016 decision.

Those cases increase the odds that the Supreme Court will need to resolve conflicting rulings between appeals courts, and opponents of the bureau hope Kavanaugh will help secure a lethal blow to the CFPB.

Marc Gottridge, head of the financial services litigation wing at the law firm Hogan Lovells, said Kavanaugh’s nomination could influence the appeals court cases that could end up in front of the Supreme Court.

“Judge Kavanaugh is really the intellectual giant on the side of arguing for the unconstitutionality of the bureau’s structure,” said Gottridge, who filed an amicus brief in support of All American Check Cashing in its lawsuit against the CFPB in the 5th Circuit.

“His views may also be accorded great weight, and I think the fact that he’s now likely to be a justice of the Supreme Court will give them added weight,” Gottridge added.

Republicans are largely opposed to the CFPB’s structure, and five Supreme Court justices could mandate major changes to the agency, or even eliminate it. Yet the bureau’s unique structure makes it hard pin down just how far justices could go to change it, Mishkin said.

“There are half a dozen Supreme Court cases that deal with this issue over the structure of agencies and what features it has to have to be constitutional,” Mishkin said. “It’s going to be interesting to see if this issue gets to Supreme Court in any event. It’s hard to believe it won’t get there.”

Updated at 5:18 p.m.