The Supreme Court of the United States recently vacated the judgment of the U.S. Court of Appeals for the Ninth Circuit that rejected constitutional challenges to the design and structure of the Consumer Financial Protection Bureau (CFPB).
By a 5-4 majority vote, the SCOTUS concluded that protections afforded to the CFPB's single director as removable by the President only "for cause" -- that is, for "inefficiency, neglect of duty, or malfeasance in office" -- violated the separation of powers under the United States Constitution. However, a 7-2 majority concluded that the director's "for cause" removal protection was severable from the remainder of the Dodd-Frank Act that created the CFPB, allowing the CFPB to continue to operate.
Therefore, in the words of the Court, the CFPB may "continue to operate, but its Director, ... must be removable by the President at will."
A copy of the opinion is available at: Link to Opinion
A law firm that provides debt-related legal services (Law Firm) was subjected to a 2017 civil investigative demand (CID). The Law Firm filed suit in federal court asserting that the CFPB's structure violates the U.S. Constitution's separation of powers doctrine, and lacked statutory authority to issue the CID.
After the CFPB prevailed in the trial court and the Law Firm was ordered to respond to the CID, the Ninth Circuit upheld the CFPB's structure on appeal. Consumer Fin. Prot. Bureau v. Seila Law LLC, 923 F.3d 680 (9th Cir. 2019).
The Supreme Court of the United States granted certiorari to address the Law Firm's assertions.
The two questions before the SCOTUS were: (i) whether the provision in Title X of the Dodd-Frank Act restricting the President's removal of the CFPB director only "for cause" violates the Constitution's separation of powers, and; (ii) if the provision is unconstitutional, whether the CFPB director's removal protection is severable from the other statutory provisions bearing on the CFPBs authority.
Reviewing the structure of the CFPB established by Title X of the Dodd-Frank Act, the Supreme Court noted that Congress' design of the CFPB elected to place the CFPB under the leadership of a single director appointed by the President with the advice and consent of the Senate, in contrast to a traditional independent agency headed by a multimember board or commission. 12 U. S. C. §§ 5491(b)(1)-(2). Further, the CFPB's Director serves a five-year term, during which the President may remove the Director from office only for "inefficiency, neglect of duty, or malfeasance in office." §§ 5491(c)(1), (3).
The SCOTUS first considered the arguments raised by the amicus curiae, appointed by the Court to defend the Bureau's constitutionality because the Department of Justice chose not to do so. The amicus argued (i) that the CID is not "traceable" to the alleged constitutional defect because two of the three Directors who have in turn played a role in enforcing the demand were (or now consider themselves to be) removable by the President at will; (ii) that the proper context for assessing the constitutionality of an officer's removal restriction is a contested removal, and; (iii) that the case should be dismissed for lack of "adverseness" because the primary parties agreed on the merits of the constitutional question.
Finding none of these arguments persuasive, the Court turned to the merits of the petitioner Law Firm's constitutional challenge.
The SCOTUS initially noted the long history and precedent confirming the President's removal power afforded under Article II of the Constitution which "grants to the President" the "general administrative control of those executing the laws, including the power of appointment and removal of executive officers." Myers v. United States, 272 U. S. 52, 163-164 (1926). More recently, the President's general removal power was reiterated in Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U. S. 477 (2010).
In Free Enterprise Fund, the Supreme Court recognized that it had previously upheld certain congressional limits on the President's removal power, but declined to extend those limits to "a new situation not yet encountered by the Court." 561 U. S., at 483.
Free Enterprise Fund left in place only two exceptions to the President's unrestricted removal power: (i) permitting Congress to give for-cause removal protection to a multi-member body of experts balanced along partisan lines, appointed to staggered terms, and performing only "quasi-legislative" and "quasi-judicial functions (Humphrey's Executor v. United States, 295 U. S. 602 (1935)) and; (ii) for-cause removal protection for an independent counsel with limited duties and no policymaking or administrative authority (Morrison v. Olson, 487 U. S. 654 (1988)).
Notably, Humphrey's Executor and Morrison were the opinions the Ninth Circuit deemed "controlling" in its opinion, in which the Ninth Circuit agreed with the D.C. Circuit's ruling upholding of the constitutionality of the CFPB in PHH Corp. v. CFPB, 881 F. 3d 75 (2018), which in turn had rejected a challenge similar to the one presented here.
However, the SCOTUS found these cases were distinguishable and did not resolve whether the CFPB Director's insulation from removal was unconstitutional.
The Supreme Court declined to extend these exceptions to the "new situation" at issue here. The Court noted that Congress provided removal protection to principal officers who alone wield power in only four isolated incidences which do not involve regulatory or enforcement authority comparable to that exercised by the CFPB. The Court also noted that the 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.
Accordingly, the Court concluded that the CFPB's leadership by a single independent Director violates the Constitution's separation of powers.
Having reached this conclusion, the Supreme Court was left to decide whether the Director's removal protection was severable from the other provisions of the Dodd-Frank Act that establish the CFPB. The SCOTUS concluded that the CFPB could continue to exist and operate notwithstanding Congress' unconstitutional attempt to insulate the agency's Director from removal by the President.
The Court recited long-settled precedent that declaration of one section or portion of a statute as unconstitutional does not act to void the statute in whole, and that "even in the absence of a severability clause, the "traditional" rule is that "the unconstitutional provision must be severed unless the statute created in its absence is legislation that Congress would not have enacted." Alaska Airlines, Inc. v. Brock, 480 U. S. 678, 685 (1987).
The SCOTUS was again guided by its holding in Free Enterprise Fund, wherein it found a set of unconstitutional removal provisions severable in the absence of an express severability clause because the surviving provisions were capable of functioning independently.
Similarly, here, the Court concluded that the structure and duties of the CFPB as provided under the Dodd-Frank Act remained fully operative without the offending tenure restriction, and was severable from the other provisions of Dodd-Frank that establish the CFPB.
Accordingly, the judgment of the Ninth Circuit was vacated and the case remanded for the Court of Appeals to consider whether the CID was ratified by an Acting Director accountable to the President.
Ralph T. Wutscher
Maurice Wutscher LLP
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