Supreme Court rules consumer bureau director can be fired at will

The Supreme Court on Monday ruled that the structure of the Consumer Financial Protection Bureau (CFPB) is unconstitutional, striking down the protections that prevented the agency’s director from being fired at will.

The court said in a 5-4 decision, which hands a victory to Republicans, that the firing protections are an unconstitutional restraint on the president’s ability to oversee executive branch agencies.

“Such an agency lacks a foundation in historical practice and clashes with constitutional structure by concentrating power in a unilateral actor insulated from Presidential control,” Chief Justice John Roberts wrote in the majority decision, joined by his conservative colleagues.

“The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will,” Roberts added.

The ruling is the culmination of a decade-long partisan battle over the CFPB, created by Congress to police predatory firms in the wake of the 2008 financial crisis. Republicans and banking groups have long argued that the bureau is unaccountable and heavy handed.

Monday’s decision renders the agency much less autonomous, giving the president more authority to pick its leader.

The CFPB was established as part of the 2010 Dodd-Frank Act with a single director to be nominated by the president and confirmed by the Senate to a five-year term. Under the act, the director could only be removed by the president for “inefficiency, neglect of duty or malfeasance.”

The court ruled on Monday, however, that the arrangement undermines the administration’s ability to pick executive branch officers. Roberts wrote that those for-cause protections are unlawful when applied to an agency led by a single director but are acceptable for regulators led by multiple commissioners, like the Securities and Exchange Commission and the Federal Trade Commission.

The four liberal justices — Stephen Breyer, Ruth Bader Ginsburg, Elena Kagan and Sonia Sotomayor — dissented, accusing the majority of inventing an arbitrary distinction between the CFPB and other agencies.

“In second-guessing the political branches, the majority second-guesses as well the wisdom of the Framers and the judgment of history,” Kagan wrote in a dissenting opinion. “It writes in rules to the Constitution that the drafters knew well enough not to put there. It repudiates the lessons of American experience, from the 18th century to the present day. And it commits the Nation to a static version of governance, incapable of responding to new conditions and challenges.”

The case against the CFPB was brought by a California-based firm called Seila Law that was under investigation by the agency. Seila challenged a subpoena in court, arguing that the CFPB was unconstitutionally structured and therefore did not have the authority to pursue the investigation.

When the case reached the Supreme Court, the Trump administration sided against the agency, arguing that the removal provisions in Dodd-Frank undermine the president’s constitutional authority.

Because of the unusual circumstance of the government arguing against its own agency, the Supreme Court appointed former Republican Solicitor General Paul Clement to defend the agency’s structure.

CFPB Director Kathy Kraninger, a Trump appointee, hailed the decision on Twitter.

“Today’s Supreme Court decision finally brings certainty to the operations of the Bureau,” Kraninger wrote. “We will continue with our important mission of protecting consumers with no question that we are fully accountable to the President.”

The CFPB was the brainchild of Sen. Elizabeth Warren (D-Mass.), who as a law professor in 2007, proposed the creation of a law enforcement entity with the mandate to protect consumers.

The protections helped insulate the bureau’s first director, Richard Cordray, from being removed when President Trump took office. Cordray, who was confirmed to the post in 2013, stepped down in November 2017, setting off a legal battle over who would succeed him.

The ruling on Monday also ensures that former Vice President Joe Biden will not be stuck with a holdover from the Trump administration should he win in November.

Democrats and consumer advocates said Monday’s ruling will leave the agency vulnerable to lobbying from special interests like predatory payday lenders subject to its jurisdiction.

“Opening the door for industry to influence the CFPB is not the reason why this agency was created—it was created to stop abusive financial practices that brought us the Great Recession, to strike fear into unscrupulous lenders, and to look after consumers, who need an ally on their side, especially during this COVID-19 pandemic,” Will Corbett, the litigation director at the Center for Responsible Lending, said in a statement.

“Payday lenders and their allies in Congress have consistently tried to weaken CFPB’s independence for political reasons and without merit,” Corbett said. “Today, the majority of U.S. Supreme Court has joined in that effort, ensuring financial damage for consumers for years to come.”

Still, the decision avoids an outcome that some advocates had feared when the Supreme Court last year asked both sides in the case to address the question of whether removal protections would render the CFPB, or even all of Dodd-Frank, unconstitutional.

“Let’s not lose sight of the bigger picture: after years of industry attacks and GOP opposition, a conservative Supreme Court recognized what we all knew: the @CFPB itself and the law that created it is constitutional,” Warren wrote on Twitter Monday. “The CFPB is here to stay.”

Warren argued that the court should not have struck down the removal protections. “They just handed over more power to Wall Street’s army of lawyers and lobbyists to push out a director who fights for the American people,” she said.

Updated at 12:38 p.m.