Twitter LinkedIn Share this page Facebook RSS

Blogs

Financial Services Law BlogLegal updates, news, and commentary from the attorneys of Baker Sterchi Cowden & Rice LLC

U.S. Supreme Court Rules CFPB Structure Unconstitutional

July 2, 2020 | Megan Stumph-Turner

The long-awaited Opinion from the United States Supreme Court has been rendered: The structure of the Consumer Financial Protection Bureau (the “CFPB”), and specifically its appointment of a single director, removable only for cause, is unconstitutional. The Court rendered its 5-4 Opinion, authored by Chief Justice Roberts, earlier this week. The Supreme Court held that the CFPB’s current structure violates the Separation of Powers clause of the U.S. Constitution. The Supreme Court reasoned that the CFPB “lacks a foundation in historical practice and clashes with constitutional structure by concentrating power in a unilateral actor insulated from Presidential Control.” The Opinion went on to provide for the longstanding history of the U.S. President’s powers to remove executive officials, with very limited exception.

Defenders of the CFPB’s statutory structure cited to other agencies that have operated under a similar structure, including the Social Security Administration and the Federal Housing Finance Agency. But, the Court held, the former is distinguishable because it does not have the authority to conduct enforcement actions. And the latter is subject to ongoing criticism and constitutional challenges. The Court noted that the Fifth Circuit recently held the FHFA to be unconstitutional in Collins v. Mnuchin, 938 F. 3d 553, 587-588 (2019).

While the High Court was split over first issue, a more overwhelming 7-2 majority ruled on the second issue at hand that unconstitutional “removal” clause of the statutes creating the CFPB are severable from the other statutory provisions. Therefore, the Court held, the CFPB can continue to operate under the existing statutes.

Justice Kagan authored a dissent to the majority opinion, arguing that the President had ample power under the existing structure to remove the CFPB Director when appropriate. She cautioned about why the CFPB was created in the first place and that by undermining its independence, the majority Opinion would send “Congress back to the drawing board.”

Going forward, we now know that the CFPB is not going anywhere, but current and future Presidents will exercise more control over who will be in charge of the Bureau. What is not clear from the Opinion is the impact that it will have on enforcement actions ratified by “unconstitutionally insulated” directors. Because Mick Mulvaney was an acting director terminable-at-will, actions ratified by him are likely protected under the Opinion. But any actions ratified by the first-appointed director, Richard Cordray, or current director Kathleen Kraninger, may face legal challenges going forward.

Subscribe
About Financial Services Law Blog

The BSCR Financial Services Law Blog explores current events, litigation trends, regulations, and hot topics in the financial services industry.  This blog will inform readers of issues affecting a wide range of financial services, including mortgage lending, auto finance, and credit card/retail transactions. Learn more about the editor, Megan Stumph,  and our Financial Services practice.

DISCLAIMER

The Financial Services Law Blog is made available by Baker Sterchi Cowden & Rice LLC for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. Your use of this blog site alone creates no attorney client relationship between you and the firm.

CONFIDENTIAL INFORMATION

Do not include confidential information in comments or other feedback or messages related to the Financial Services Law Blog, as these are neither confidential nor secure methods of communicating with attorneys. The Financial Services Law Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

 
×

For Important Legal Updates and Resources on the Coronavirus Click Here.