From the inception of the Consumer Financial Protection Bureau (“CFPB”), opponents have argued that its single-director structure is unconstitutional. The arguments focused on the executive power that the Constitution vests in the President, positing that limiting the President’s power to remove the CFPB director only for cause infringes upon the President’s executive power and therefore violates the Constitution’s separation of powers.

As Dykema previously blogged, the constitutionality of the CFPB has been litigated in the lower courts, with lower courts siding with CFPB opponents. Notably, Justice Brett Kavanaugh, a D.C. Circuit Court judge at the time, delivered an opinion finding the CFPB unconstitutional, explaining “[t]he CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.” Justice Kavanaugh was confirmed to the Supreme Court on October 6, 2018 and has proved favorable for those opposing the CFPB.

But success in the lower courts, has proved to be a “win” in name only for opponents of the CFPB. The CFPB was not disbanded and the director was not ordered to be removable at the will of the President. Nor did the lower court opinions create binding precedent for other jurisdictions. Ultimately, in order to settle the issue once and for all and obtain a definitive ruling clarifying the future of the CFPB, the Supreme Court of the United States (“SCOTUS”) needed to weigh in on the issue. SCOTUS did just that on June 29, 2020 in Seila Law LLC v. CFPB, 591 U.S.____ (2020).

In Seila Law LLC, in a 5-to-4 ruling, SCOTUS found the CFPB’s single-director structure unconstitutional.  Chief Justice Roberts delivered the opinion, with Justices Thomas, Alito, Gorsuch, and Kavanaugh joining in Parts I, II, and III, and Justices Alito and Kavanaugh joining in Part IV. Like the lower courts that previously decided this issue, SCOTUS found the CFPB’s fatal flaw to be it’s departure from the traditional constitutional structure. Chief Justice Roberts explained that the President’s prerogative to remove executive officials has “long been confirmed by history and precedent” and that Supreme Court precedent has recognized only two exceptions: (1) removal of “multimember expert agencies that do not wield substantial executive power” and (2) removal of “inferior officers with limited duties and no policymaking or administrative authority.”

Noting the CFPB’s substantial enforcement, rulemaking, and adjudicative authority, SCOTUS concluded that extending the removal exceptions to the CFPB “has no basis in history and no place in our constitutional structure.” SCOTUS further explained that that U.S.’s “constitutional strategy is straightforward:  divide power everywhere except for the President, and render the President directly accountable to the people through regular elections.” The Seila Law LLC opinion concluded that the CFPB’s structure is unconstitutional because it “contravenes this carefully calibrated system by vesting significant governmental power in the hands of a single individual accountable to no one.”

Despite finding the CFPB’s structure unconstitutional, SCOTUS rejected the dissent’s call to disassemble the bureau and start afresh, explaining that “constitutional avoidance is not a license to rewrite Congress’s work to say whatever the Constitution needs it to say in a given situation.” Instead, SCOTUS held that the removal provisions of the Dodd-Frank Act are severable and the CFPB “may continue to exist and operate notwithstanding Congress’s unconstitutional attempt to insulate the agency’s Director from removal by the President.”

In sum, Seila Law LLC has settled the long-debated question of the constitutionality of the CFPB, but the opinion did not deliver what many opponents of the CFPB had hoped: an end to the Bureau as a whole. Instead, the CFPB will continue to function like it has in the past—with the one exception that the director is now removable at the will of the President.

So what does the Selia Law LLC opinion really mean for the CFPB? With each new President, we should expect the director will be removed and replaced with a director that shares the same political views and ambitions as the new administration—similar to how a newly elected President appoints cabinet members. In turn, the CFPB likely will shift its regulatory and enforcement focus with each change in administration.

We caught a glimpse into that shift when Richard Cordray—appointed by President Obama—resigned as director of the CFPB and Mick Mulvaney—appointed by President Trump—took over as acting director. Following Mulvaney’s appointment as acting director, he took steps that were widely viewed as loosening the CFPB’s oversight of financial firms and rolling back agency regulations. With the 2020 election fast-approaching, a potential shift in the CFPB is on the horizon.

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