The Supreme Court on Monday handed President Donald Trump greater authority over the Consumer Financial Protection Bureau, ruling that a legal provision restricting the president”;s ability to fire the director is unconstitutional.
While the decision will make the CFPB less independent, it preserved the agency by severing the removal clause from the rest of the 2010 law that created the bureau.
“;The structure of the CFPB violates the separation of powers,”; Chief Justice John Roberts wrote in the decision. “;The agency may …; continue to operate, but its Director, in light of our decision, must be removable by the President at will.”;
The court said that a key 1935 decision “;permitted Congress to give for-cause removal protection to a multimember body of experts who were balanced along partisan lines”; but did not extend that authority to a single director vested with executive power.
The decision could have significant implications for the future of the similarly structured Federal Housing Finance Agency, the overseer of mortgage giants Fannie Mae and Freddie Mac. Like the head of the CFPB, the FHFA director is appointed to a five-year term and can only be removed for cause.
From the day it opened its doors nine years ago, the CFPB –; the brainchild of Sen. Elizabeth Warren (D-Mass.), then a law professor at Harvard –; was polarizing, with Democrats casting it as a long-overdue cop on the beat for consumers after the 2008 financial crisis and Republicans slamming the agency as an example of regulatory overreach.
Congress established the bureau as part of the landmark 2010 Dodd-Frank financial overhaul, mandating that it be led by a single director appointed to a five-year term who could only be fired for “;inefficiency, neglect of duty or malfeasance in office”; in a bid to insulate the agency from political interference. In a similar move, the authors of Dodd-Frank also chose to fund the CFPB through the Federal Reserve, rather than the congressional appropriations process.
Yet where Democrats see independence, Republicans see a lack of accountability. Republicans have long sought to overhaul the agency”;s single-director structure and replace it with a bipartisan commission akin to the leadership of other financial regulators. GOP attacks have abated since Trump put his own people in charge of the bureau, but the leadership issue has never been resolved.
The political ramifications of the fight over whether the for-cause removal of the CFPB director violates the Constitution”;s separation of powers were clear as the Supreme Court considered the case brought by Seila Law, a California debt relief firm that refused to cooperate with a CFPB investigation.
The Trump administration, including CFPB Director Kathy Kraninger, in September reversed its position and said it agreed that the bureau is unconstitutionally structured, leading the court to tap former solicitor general and conservative legal star Paul Clement to defend the agency.
Solicitor General Noel Francisco joined Seila Law in saying that the CFPB effectively answers to no one, during oral arguments in March.
“;The president stands for election; the director of the CFPB does not,”; Francisco told the court. “;So if the director is insulated from presidential oversight, then her exercises of executive power are insulated from democratic control. And that’s not the structure that our Constitution creates and requires.”;
House Democrats, meanwhile, sent their general counsel to back Clement”;s argument that the for-cause removal is only a modest restraint on the president”;s power to remove someone and helps preserve the agency”;s independence.
Clement referred to the coronavirus pandemic in his arguments, saying Congress would be perfectly within its rights to pass a law that the director of the Centers for Disease Control and Prevention can only be removed for cause: “;That is the kind of sensible decision that Congress has been making for over 100 years,”; he said.
Read more: politico.com