Partisan fight over consumer bureau arrives at Supreme Court

The Supreme Court on Tuesday will hear oral arguments in a case that could be the culmination of Wall Street’s 10-year battle against the Consumer Financial Protection Bureau (CFPB), the independent regulator created by Congress in the wake of the financial crisis.

The case has become a proxy battle for the larger partisan fight that has been raging over the agency since it was first proposed amid the 2008 recession. The CFPB was created by the Dodd-Frank financial reform law that was aimed at addressing what many Democrats saw as a lack of oversight and regulation on Wall Street that contributed to the crisis.

Rallying around the agency are consumer groups, Democrats and constitutional scholars. Meanwhile, banks, payday lenders, business groups and free market advocates are urging the court to either rule the CFPB unconstitutional or restructure it in a way that gives the White House more control over the agency.

Progressives see the regulator as a successful experiment in protecting consumers against predatory financial firms. In its first six years of existence, the CFPB reclaimed nearly $12 billion for consumers from such businesses.

But conservatives and much of the private sector see the agency as an unaccountable regulator and an overzealous check on the free market. The CFPB was created with a unique structure to allow it to carry out its enforcement mandate while being shielded from political and industry influence.

It’s led by a single director, who’s nominated by the president and confirmed by the Senate to a five-year term. The director can only be fired for “inefficiency, neglect of duty or malfeasance,” meaning that unlike officials at most executive branch agencies, the CFPB’s leader cannot be removed just because there’s a change in administration.

The case now before the Supreme Court argues that this structure is unconstitutional because it illegally restrains the president’s ability to determine the makeup of executive branch agencies.

“The Framers sought to ensure that the executive power would be wielded in a manner that is both decisive and politically accountable,” the Department of Justice (DOJ) wrote in a brief to the court. “By vesting the executive power in the President alone, the Constitution ensures that all exercises of this great power of the government are ultimately subject to the will of the people. The statutory restriction on the President’s authority to remove the CFPB Director contravenes this basic principle.”

California-based law firm Seila Law sued the CFPB after it received a subpoena as part of an investigation into whether it had engaged in illegal marketing practices. The firm argued that the subpoena was invalid because the agency is unconstitutional.

A district judge and an appeals court disagreed, siding with the CFPB and prompting Seila to seek a Supreme Court review.  

The Trump administration is refusing to back the CFPB, instead supporting Seila’s argument that the agency is unconstitutionally structured.

That opposition created an unusual arrangement for the Supreme Court case. Because the DOJ, which typically represents government agencies in court, is arguing against the CFPB, the court decided to appoint Paul Clement, a former Republican solicitor general, to argue on behalf of the regulator.

The court will also hear from the Democratic-controlled House during oral arguments on Tuesday, which is also backing the CFPB.

While arguing that the CFPB director’s removal protections are unconstitutional, the DOJ is urging the court to address it in a way that leaves the agency, and the rest of Dodd-Frank, intact.

“The Bureau is the federal government’s only agency solely dedicated to consumer financial protection,” the DOJ said in its most recent brief. “It has issued numerous significant rules, obtained billions of dollars in relief through enforcement, and reached millions of consumers through its education functions.”

Clement and the House’s lawyers have told the court that this case does not provide a proper venue for it to rule on the constitutionality of the agency. They argue that because the Seila subpoenas were issued by the CFPB under the direction of an acting director, who did not have the legal protections against removal, the constitutional question the law firm is pushing has little bearing on whether they must comply with the subpoena.

But if the court does decide to rule on the constitutional merits of the case, they argue, it should recognize Congress’s authority to structure executive branch agencies.

“One can imagine a Constitution that gives the President carte blanche to organize the executive branch and determine whether the Attorney General needs a formal Department of Justice or whether monetary policy shall be conducted by the Treasury Department or a separate agency, but that is not the United States Constitution,” Clement argued in his brief. “Our Constitution vests the primary responsibility for establishing and organizing executive-branch agencies in the Congress.”

The federal courts have dealt with other cases challenging the bureau before, including the U.S. Court of Appeals for the District of Columbia, which found the agency’s structure unconstitutional in 2016 in a decision authored for a three-judge panel by Brett Kavanaugh, now a Supreme Court justice. The panel’s decision was later overturned by the full circuit court.

Tuesday’s arguments will offer the first glimpse at the justices’ thinking on how to rule in the case, with a decision by the end of June at the latest.