Banking and Finance Law Daily Supreme Court agrees to decide Consumer Financial Protection Bureau constitutionality
Friday, October 18, 2019

Supreme Court agrees to decide Consumer Financial Protection Bureau constitutionality

By Richard A. Roth, J.D.

The Supreme Court has granted a petition for certiorari in Seila Law, LLC v. CFPB, a suit in which a law firm is asserting that the CFPB’s organizational structure violates Constitutional separation of powers principles.

A law firm that provides consumer debt relief services will be given an opportunity to convince the Supreme Court that the organization of the Consumer Financial Protection Bureau, which features a single director who can be removed by the president only for cause, unconstitutionally interferes with the president’s duty to ensure that federal laws are enforced properly. The Court also has directed briefing on a second issue—the proper remedy if the Bureau is determined to be unconstitutional. The petition for certiorari was filed in Seila Law, LLC v. Consumer Financial Protection Bureau, No. 19-7.

Seila Law is challenging the CFPB’s constitutionality as it resists the Bureau’s efforts to investigate whether the firm’s debt relief services marketing practices violate the Consumer Financial Protection Act. The U.S. Court of Appeals for the Ninth Circuit rejected the constitutionality claim (see Banking and Finance Law Daily, May 7, 2019). In a separate suit, PHH Corporation v. Consumer Financial Protection Bureau, the U.S. Court of Appeals for the District of Columbia Circuit, sitting en banc, reached the same conclusion despite a dissent by now-Justice Kavanaugh (see Banking and Finance Law Daily, Jan. 31, 2018). However, the PHH Corp. decision was not appealed to the Supreme Court.

Petition arguments. The firm rests its argument against the Bureau’s organization 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 law firm also points to 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.

Remedy. In an earlier decision, a three-judge panel of the D.C. Circuit agreed that the CFPB’s organization impermissibly interfered with presidential powers. However, a majority of the panel offered PHH Corp. only limited relief—the Dodd-Frank Ac provision allowing the CFPB director to be discharged only for cause would be severed from the remainder of the Act.

This would prevent the Act from interfering with the president’s power, the panel majority said. However, that remedy also would leave the Bureau intact and able to pursue its investigation of Seila Law. The firm did not raise the issue of the proper remedy in its petition, but the Court has directed that it be briefed.

The remedy issue has been raised in another petition for certiorari pending before the Court, All American Check Cashing, Inc. v. Consumer Financial Protection Bureau, No. 19-432.

Who’s to argue? One aspect of the appeal that remains unclear is who will present the argument that the CFPB’s structure is constitutional. Both the Justice Department and the Bureau have made clear they now side with Seila Law and will not defend the Bureau’s constitutionality, although they will support the severance remedy. The Court will need to appoint counsel to argue that the Act is constitutional, but it has not yet done so.

Companies: All American Check Cashing, Inc.; Seila Law, LLC; PHH Corporation

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