Great News: The Supreme Court Might Attack the CFPB

It sounds bad, but it would likely enable a Democratic president to get rid of an unqualified, anti-regulatory Consumer Financial Protection director immediately.


Tom Williams/CQ Roll Call via AP Images

Nerves frayed among progressive judiciary watchers on Friday afternoon as the Supreme Court announced plans to take up Seila Law LLC v. Consumer Financial Protection Bureau. This case will decide whether the bureau’s leadership structure, in which a single director can only be removed by the president for “inefficiency, neglect of duty, or malfeasance in office,” is constitutional.

The Court’s newest justice, Brett Kavanaugh, has already answered this question. As part of a three-judge panel on the D.C. Circuit in 2016, Kavanaugh wrote the majority opinion that the CFPB’s single-director structure was unconstitutional. The entire D.C. Circuit re-heard the case in 2018, and in an en banc ruling upheld CFPB’s structure. Because that was a different case involving a financial firm called PHH, I’d be surprised if Kavanaugh recused himself from Seila Law, even though the issue will be exactly the same and Kavanaugh would effectively be reviewing his own previous ruling.

Everyone expects that the Court will follow Kavanaugh’s lead from 2016, and will grant the president the power to fire the CFPB director for any reason. But this could be a very positive step in the current context. It would mean that an Elizabeth Warren or Bernie Sanders (or likely any Democratic) administration wouldn’t be stuck with anti-regulatory director Kathy Kraninger in place until December 2023.

The case the Court accepted concerns Seila Law, which is involved in debt-relief services, and which received a civil investigative demand (CID) from the CFPB seeking information on potential telemarketing violations. Seila Law contested the CID because, in its view, the agency’s structure made it unconstitutional. It lost that case in the Ninth Circuit Court of Appeals, which followed the precedent of the D.C. Circuit’s en banc ruling. When the case was before the Ninth Circuit, the Trump administration joined the CFPB’s attackers by filing a brief arguing that the agency is unconstitutional.

The CFPB structure was intended to insulate the director from shifts in the political winds, giving them a full five-year term to carry out their mission. The structure didn’t set a precedent. The idea that no federal government agency can have a single director who cannot be fired at will by the president would come as news to the Federal Housing Finance Agency, the Office of Special Counsel, and the Office of the Comptroller of the Currency, all of which have substantially the same setup. The language in the conditions for removal for the Office of Special Counsel, in fact, is identical to the CFPB’s. There’s also an 80-year-old Supreme Court precedent stating that the president cannot fire members of the Federal Trade Commission at will.

The argument that the far right made up about the unconstitutionality of the CFPB’s structure has consistently lost in the courts, except when Kavanaugh’s panel jumped at it. But in ruling the CFPB unconstitutional, Kavanaugh’s remedy was not to dissolve the agency. He merely proposed changing the director to an at-will employee of the president. The CFPB would be able to operate in the same fashion, Kavanaugh wrote, but “will do so as an executive agency akin to other executive agencies headed by a single person … the President now will be a check on and accountable for the actions of the CFPB.”

Donald Trump has already taken his opportunity to do this. When Richard Cordray left the agency to unsuccessfully run for governor of Ohio in 2017, Trump replaced him, first with Mick “Quid Pro Quo” Mulvaney and then with Kraninger, who was finally confirmed in December 2018. Kraninger is set for a five-year term, which would carry to December 2023.

No future president, whether Trump or his opponent in 2020, would be able to dislodge Kraninger from her post without cause until the end of that term, or should she vacate the spot, whichever comes first. Unless, of course, the Supreme Court follows Kavanaugh’s prior prescription. That would allow a Democratic president to terminate Kraninger nearly three years before her scheduled departure.

Kraninger, by the way, would probably be fireable under the “neglect of duty, or malfeasance in office” standard. During her tenure, Kraninger has rolled back rules on payday lenders that enable them to continue to trap desperate borrowers in cycles of debt. She’s on the verge of letting debt collectors text message borrowers, thereby increasing the harassment from these bottom-feeding companies. And she wants to convene a task force to “modernize” federal consumer protection laws, a code word for eliminating them. (By the way, you can apply to serve on the task force; the deadline is October 25. You’re supposed to have consumer protection experience, but if you only have more than Kraninger, who had none when she came to the bureau, you should be able to clear that hurdle.)

On the off chance that a 2020 vanquisher of Trump doesn’t find this record disqualifying, the Supreme Court can help them out by allowing a president to just fire Kraninger for no reason at all.

Now, there was a potentially ominous warning in the Supreme Court’s announcement. The Court asked the respondents to prepare briefs on this question: “If the Consumer Financial Protection Bureau is found unconstitutional on the basis of the separation of powers, can 12 U.S.C. §5491(c)(3) be severed from the Dodd-Frank Act?” In plain English, the Republican justices want to see if they can take down Dodd-Frank entirely along with the CFPB.

To be sure, Dodd-Frank contains a severability clause that explicitly states that a section found unconstitutional can be severed from the rest of the act. The question is ridiculous, but that it’s even being considered is a danger.

However, let’s step back. Kavanaugh already had a free shot at Dodd-Frank, and not only did he not take it, he did the least possible damage to the CFPB in the process. And we know that Chief Justice Roberts, mindful of the legacy of the court that bears his name, is more inclined to chip away at statutes than to take an audacious frontal assault. While Justices Alito or Thomas may be radical enough to consider tossing the entire 900-page statute, in operation for nearly a decade, I don’t see five votes for that. Even the Trump administration, in its brief, only asked to change the “for cause” provision for firing a CFPB director.

Yes, a decision in accord with Kavanaugh’s would be part of a broader push for a “unitary executive” in control of the entire executive branch. It could signal more intrusions on federal agencies from the executive. But as a practical matter, all it would do in this case is allow the next Democratic president to get rid of a really bad CFPB director.

The most likely scenario is that a ruling follows the Kavanaugh precedent, making the agency director answerable to the president. And if you think the next president will be a Democrat, that’s very good news indeed. It means that re-regulation of the financial system can commence unimpeded from the start of the next president’s term, without a mole in place for nearly three years at the CFPB, making sure that consumers have no cop on the street to defend them from financial predators.

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