Feds’ Consumer Watchdog Agency Is Legal, Ninth Circuit Rules

Kathleen Kraninger, President Donald Trump’s nominee to be the director of the Bureau of Consumer Financial Protection, testifies before a Senate Banking Committee hearing on her confirmation on Capitol Hill in Washington, July 19, 2018. (AP Photo/Manuel Balce Ceneta)

(CN) – An agency with limited quasi-judicial powers is constitutional, despite having a director – currently President Donald Trump appointee Kathy Kraninger – who can only be removed by the president for inefficiency, neglect of duties or malfeasance, the Ninth Circuit ruled Monday.

At issue is the Consumer Financial Protection Bureau, which was created in 2010 through passage of the Consumer Financial Protection Act by Congress. The bureau is housed in the Federal Reserve, but has the authority to investigate and administratively punish financial wrongdoing.

The Ninth Circuit appeal stems from a lawsuit to force Seila Law, a Kansas-based firm that represents consumers facing debt, to comply with investigative requests from the bureau. The firm argued it did not have to comply, because the bureau’s structure was unconstitutional.

A three-judge Ninth Circuit panel disagreed.

Citing two Supreme Court cases, the panel ruled the for-cause arrangement does not violate the Constitution.

In 1935’s Humphrey’s Executor v. United States, the high court justices found the structure of the Federal Trade Commission – which has similar powers to the bureau – is constitutional. Five decades later in Morrison v. Olson, the court ruled more specifically that a for-cause restriction on removal of an executive branch official by the president is constitutional and a way of maintaining the FTC’s independence from the president.

“Like the FTC, the CFPB exercises quasi-legislative and quasi-judicial powers, and Congress could therefore seek to ensure that the agency discharges those responsibilities independently of the president’s will,” U.S. Circuit Judge Paul J. Watford, a Barack Obama appointee wrote for the panel.

The firm also argued the bureau’s investigative powers violate a federal law barring work normally done by attorneys. The Ninth Circuit also rejected that argument.

U.S. Circuit Judge Susan P. Graber, a Bill Clinton appointee, and U.S. District Judge Jack Zouhary, sitting by designation from the Northern District of Ohio and a George W. Bush appointee, rounded out the panel.

Kraninger, who was appointed in December, has worked on budget issues for the Senate Appropriations Committee and House Appropriations Committee, focusing on the Department of Homeland Security budget. Even a future president could only remove her for cause, not at-will as the chief executive can for other federal agency directors.

Anthony Bisconti of the San Clemente firm Binert Miller & Katzman argued the case for Seila Law, backed by Thomas Bienert Jr. Neither returned a request for comment Monday.

The Consumer Financial Protection Bureau communications office did not return an email or telephone call.

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