The Supreme Court ruled Monday that the structure of the Consumer Financial Protection Bureau is unconstitutional, determining that its head must be removable at the will of the president.
The decision reduces the power of the agency, the brainchild of Elizabeth Warren, and is a victory for business groups. The court stopped short, though, of eliminating the bureau, as sought by conservatives.
“The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will,” Chief Justice John Roberts wrote for the 5-4 majority.
The decision agreed with a California-based law firm’s argument that the bureau’s leadership by a sole director who was removable “only for cause” violated the separation of powers rule under the U.S. Constitution.
The ruling overturns a federal district court ruling and appellate court decision that had rejected the law firm’s arguments. Cases challenging the constitutionality of the agency have been weaving their way through the lower courts in the past few years.
In 2016, Justice Brett Kavanaugh, then a judge on the U.S. Court of Appeals for the District of Columbia Circuit, said in a ruling in a similar case that the CFPB is a “gross departure from settled historical practice.”
In October 2019, the Supreme Court agreed to take up a dispute over the constitutionality of the Consumer Financial Protection Bureau, filed by California-based law firm Seila Law. The law firm is being investigated by the CPFB for allegedly participating in “unlawful acts or practices in the advertising, marketing, or sale of debt relief services.” The investigation will continue after the Supreme Court decision, since the agency still has the power to investigate law firms for such debt relief services.
The CFPB has broad authority to regulate mortgages, credit cards, and other consumer products. It returned nearly $12 billion to consumers through 2017, before largely curtailing enforcement actions under President Donald Trump.
In 2018, Trump tapped Kathy Kraninger to replace Mick Mulvaney, the acting CFPB director. Kraninger herself argued that the for-cause removal provision for the CPFB director was unconstitutional, which would make it easier to fire her and any futured directors.
Congress set up the CFPB as part of the Dodd-Frank financial reform package, and its director is appointed by the president and confirmed by the Senate. The director serves a term of five years.
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