Banking and Finance Law Daily Law firm appeals CFPB constitutionality ruling to Supreme Court
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Wednesday, July 31, 2019

Law firm appeals CFPB constitutionality ruling to Supreme Court

By Richard A. Roth, J.D.

A law firm whose consumer debt relief services are under investigation by the Consumer Financial Protection Bureau is asking the Supreme Court to decide that the Bureau’s organization violates the Constitution’s separation of powers requirements.

The Dodd-Frank Act’s creation of the Consumer Financial Protection Bureau as an independent agency led by a single director who can only be removed for cause violates Constitutional separation-of-powers principles, according to Seila Law LLC. The firm has filed a petition for certiorariwith the Supreme Court in an effort to overturn a decision by the U.S. Court of Appeals for the Ninth Circuit that upheld the Act.

The dispute began when the CFPB began an investigation into whether the firm’s marketing of its debt relief services violated federal consumer financial protection laws. A federal district court judge ordered the firm to comply with the Bureau’s civil investigative demand, and the Ninth Circuit affirmed the order (see Banking and Finance Law Daily, May 7, 2019). In doing so, the Ninth Circuit considered and rejected the constitutionality challenge.

The Ninth Circuit is not the only federal appellate court to uphold the Dodd-Frank Act and the Bureau’s organization. The U.S. Court of Appeals for the District of Columbia Circuit reached the same result, despite a vigorous dissent by now-Justice Brett M. Kavanaugh, in PHH Corporation v. CFPB (see Banking and Finance Law Daily, Jan. 31, 2018).

Petition arguments. The firm rests its arguments on two sections of Article II of the Constitution: Section 1, which vests the executive power in the President, and Section 3, which requires the President to "take Care that the Laws be faithfully executed..." The independence of the CFPB director prevents the President from fulfilling his Section 3 duties, the firm maintains.

"That structure leaves the Director to exercise the CFPB’s enormous power entirely as he chooses, without direction or supervision from the President and without any checks from a multi-member group endowed with equivalent authority. That is grossly out of step with the text of the Constitution...," the petition asserts.

The petition also relies on the Bureau’s unusual funding mechanism, which allows it to draw on funds generated by Federal Reserve Board assessments rather than requiring it to rely on Congressional appropriations. There is no precedent for an agency with such independence, the firm asserts.

Procedural issue. One interesting complication is that in the PHH Corp. suit, the Justice Department sought a middle ground between the company and the Bureau. According to Justice, the CFPB’s structure is unconstitutional, but the remedy would be to sever the for-cause protection. This would make the CFPB director vulnerable to the President’s discharge power and eliminate the separation of powers problem.

Given that the CFPB can represent itself before the Supreme Court only with the consent of the Justice Department, and that Justice does not support the Bureau, it would seem that the argument in favor of constitutionality will be developed fully only if the Court appoints counsel to do so.

Supporting briefs. Seila Law’s petition was filed on June 28, 2019, but a number of amicus curiae briefs already have been filed. Briefs arguing in favor of granting certiorari and attacking the Dodd-Frank Act provisions have been filed by:

The petition is No. 19-7.

Attorneys: Kannon K. Shanmugam (Paul, Weiss, Rifkind, Wharton & Garrison LLP) for Seila Law LLC. Noel J. Francisco, Solicitor General. Scott A. Keller (Baker Botts LLP) for the Cato Institute. Andrew John Pincus (Mayer Brown LLP) for the Chamber of Commerce of the U.S. Oliver James Dunford (Pacific Legal Foundation). Kyle Douglas Hawkins (Texas Attorney General’s Office) for state amici curiae. Kimberly Stewart Hermann (Southeastern Legal Foundation). Richard Peter Hutchison (Landmark Legal Foundation). Ilan Wurman (Separation of Powers Scholars).

Companies: Seila Law LLC

MainStory: TopStory CFPB DoddFrankAct SupremeCtNews

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