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Industry Reacts to Supreme Court’s CFPB Ruling

The Supreme Court ruled Monday that the structure of the Consumer Financial Protection Bureau (CFPB) is unconstitutional, but it can keep operating under new rules.

“The CFPB’s single-Director configuration is also incompatible with the structure of the Constitution, which—with the sole exception of the Presidency—scrupulously avoids concentrating power in the hands of any single individual,” the ruling states.

Additionally, the court said its director “must be removable by the President at will.”

The CFPB was created by Sen. Elizabeth Warren (D-Massachusetts) prior to her time as an elected official and created by Congress following the 2008 financial collapse.

Chief Justice John Roberts said in his opinion that in organizing the CFPB, Congress “deviated from the structure” of every other independent agency.

“Instead of placing the agency under the leadership of a board with multiple members, Congress provided that the CFPB would be led by a single Director, who serves for a longer term than the President and cannot be removed by the President except for inefficiency, neglect, or malfeasance. The CFPB Director has no boss, peers, or voters to report to,” he said.

Don Layton, Senior Fellow at Harvard’s Joint Center for Housing Studies (JCHS), said the Supreme Court’s decision affirms what an appeals court already ruled, and it was not unexpected. He added that the decision to make the CFPB director fireable was a “reasonable remedy of the appeals court.”

“Some people had hoped the remedy would be more extreme in which all actions taken by the CFPB under the quote. Now one constitutional leadership structure unquote, would be invalidated that would have been highly disruptive to so many things. They did not do that,” Layton said.

The other aspect worth nothing, he said, is the integration of politics and policy.

“The obvious solution to create the full independent agency that was intended by Congress. Then to go back and put in a non-single director commission structure, which meets Supreme court requirements that's [similar to] your SCC or CFTC or any of those organizations,” Layton said.

He added there have been proposals to do that over time, but they have failed to gain traction. Layton also said Congress will have a bit of challenge navigating the politics of the situation, and that is this is very similar to how the Federal Housing Finance Agency—who supervises Fannie Mae and Freddie Mac.

“The legislation creating these two different agencies has lots of similarities on this topic, but not everything,” he said. “I'm sure there'll be some debate as to whether it's applicable the FHF, but it seems largely to irrelevant whether it has to get argued in court.”

Layton also said that it is too early to tell how this could impact how the CFPB operates.

Opening arguments for Seila Law v. the Consumer Financial Protection Bureau occurred in March.

Kannon K. Shanmugan, attorney for Siela Law, who argues the CFPB was constructed against the U.S. constitution, had a clear message for the Supreme Court.

“The structure of the CFPB is unprecedented and unconstitutional,” Shanmugan said. “Never before in American history has Congress given so much executive power to a single individual who does not answer to the President.”

He added that by limiting the President’s ability to remove the CFPB’s director, Congress violated the “core presidential prerogatives” to exercise the executive power that laws are faithfully executed.

Shanmugan continued his opening remarks by saying the Solicitor General contends that the Supreme Court should rewrite the Dodd-Frank Act, giving the president the power to remove the CFPB’s director.

“But the constitutional question, in this case, arises in the context of a defense to an enforcement proceeding and not a facial challenge,” he said.

Shanmugan added that the government’s proposed fix would make the CFPB less independent than the agencies it was replacing.

“The Court should leave to Congress the quintessentially legislative task of deciding how to fix the CFPB's defective structure,” he said.

About Author: Mike Albanese

Mike Albanese is a reporter for DS News and MReport. He is a University of Alabama graduate with a degree in journalism and a minor in communications. He has worked for publications—both print and online—covering numerous beats. A Connecticut native, Albanese currently resides in Lewisville.

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