Justices spar over fate of consumer agency

The Supreme Court appeared sharply divided along ideological lines Tuesday over the question of whether the structure of the Consumer Financial Protection Bureau (CFPB), an agency seen as a progressive achievement in the wake of the financial crisis, is unconstitutional.

The court heard oral arguments in a case centering on whether Congress improperly insulated the agency from executive branch control by designing it to be led by a single director whom the president cannot fire at will.

The Trump administration is refusing to defend the agency, instead siding with a California law firm that sued the CFPB in arguing that the structure unconstitutionally infringes on the president’s control over the executive branch.

Solicitor General Noel Francisco argued to the court that the arrangement is undemocratic, because a director who operates under such protections is not answerable to the president. Officials who are appointed by the president and can be fired at will, Francisco argued, are held accountable by the president and in turn the president is held accountable by the voters for those officials’ actions.

Most of the five justices on the court’s conservative majority seemed to agree and sharply questioned the attorney that the court appointed to argue in favor of the agency, former Republican Solicitor General Paul Clement.

They appeared most concerned about the prospect of Congress instituting similar restraints on the president’s ability to fire officials at other agencies.

“What do we do with the fact — and I’m sure you’ve given this great thought — that if we were to approve single-member agencies without any presidential removal power — let’s just suppose that — we would run into questions about the Cabinet, for example, which are just agencies right?” Justice Neil Gorsuch asked Clement.

Clement responded that there are constitutional and structural protections in place to prevent Congress from dictating the president’s powers over certain executive branch personnel.

Chief Justice John Roberts seemed to be the only conservative justice to have any ambivalence. He said the 2010 law that created the CFPB, the Dodd-Frank Wall Street Reform and Consumer Protection Act, seemed to give the president some leeway by allowing him to fire the agency’s director for “inefficiency.”

“Theoretically, I don’t know that the courts would be terribly suited to second-guess that,” Roberts said.

The CFPB has been in conservative lawmakers’ crosshairs since it was first created. They argue it’s an unaccountable regulator and an overzealous check on the free market.

But progressives see the agency as a massive success. It returned nearly $12 billion to consumers from predatory lenders and other financial firms in its first six years in existence.

Unlike most independent executive branch agencies that are led by multimember commissions, the CFPB is headed by just one executive, who is appointed by the president and confirmed by the Senate but can only be fired for “inefficiency, neglect of duty or malfeasance.” That restricts incoming administrations from installing ideological or political allies at the agency.

Congress designed the agency, which was first proposed by Sen. Elizabeth Warren (D-Mass.) when she was a law professor, in order to protect it from political interference or industry influence out of a belief that a lack of oversight on Wall Street helped lead to the 2008 financial crisis.

Richard Cordray, the first-ever CFPB director under former President Obama, told The Hill that his takeaway from Tuesday’s argument was that the justices understood the gravity of the decision they’re facing.

“There were indications that the court understood that a very broad sweep would cause tremendous disruption to settled expectations and the economy, and they would not want to be the authors of that,” Cordray said.

He added that legal challenges against the CFPB like the one heard Tuesday had been slowing the agency’s work.

“But ultimately, I do think that it will be good for the court to decide this issue and put it behind us because it has been an obstacle in a number of enforcement actions,” Cordray said. “Once the issue is raised, it becomes a procedural problem, it slows down the case, it ties it up with side issues aside from the wrongdoing that the company may have perpetrated and it makes it harder to get results.”

The liberal justices on the court expressed skepticism about the arguments against the agency’s structure, noting that other agencies’ multimember commissions are similarly protected from being fired at will and the difference between those and the CFPB seemed inconsequential.

Justice Ruth Bader Ginsburg suggested that independence allowed the agency to more successfully police the financial sector.

The case before the justices involves the law firm Seila Law, which sued the CFPB, arguing the subpoenas it had received from the agency are invalid because the regulator is unconstitutional. Kannon Shanmugam, an attorney representing the firm, argued that the CFPB posed a threat to liberty because neither the president nor Congress could adequately check its powers.

“You talked about liberty. Now whose liberty are we speaking of?” Ginsburg asked. “What about the consumers? I mean, Congress passed this law so that the consumers would be better protected against financial fraud. And you’re talking about, I suppose, the liberty of your client. But what about the people that Congress was concerned about, that is, the consumers who were not well protected by the array of agencies that were handling these problems?”

There are a number of different routes that the court could take in deciding the case.

Clement and Douglas Letter, the House’s general counsel, are arguing that the case does not properly pose the constitutional questions raised about the agency because those issues do not affect the subpoenas to Selia Law. They’re urging the justices to reject the case without deciding the merits of the constitutional argument.

While Seila and the Trump administration are in agreement on their critique of the CFPB’s structure, they differ on how the court should go about addressing it. Seila proposes that the court invalidates the entire section of Dodd-Frank that created the agency, which would kill the CFPB and return consumer protection powers to other agencies.

The Justice Department, meanwhile, suggests that the court should simply strike down the removal protections and keep the agency in place by “severing” that language from Dodd-Frank and keeping the rest of the law intact.

Letter similarly warned that killing the agency would completely upend consumer protection in the financial sector.

“If there is no severability here, I want to make sure that you all understand this is not a simple situation of, well, we’ll just have these functions go back to the other agencies where they came from,” Letter said.

“The other agencies don’t have either slots or appropriations to enforce what the CFPB does,” he said. “So if you say this is non-severable, we strike down the whole statute, in this instance, that would be a very, very major action.”

The case is expected to be decided by the end of June.

Sylvan Lane contributed.

Updated at 2:43 p.m.