Supreme Court Readies Kill Shot for CFPB Term Rules

WASHINGTON (CN) — Stacking the lawmakers’ vision against executive authority, the Supreme Court’s conservative majority appeared ready Tuesday to give the president more power over the Consumer Financial Protection Bureau.

Just how far the court’s ruling might go remained unclear after more than an hour of arguments this morning, with some justices charting a course to rule on procedural grounds, sidestepping the case’s core constitutional question.

A sign stands at the 2018 construction site for the Consumer Financial Protection Bureau’s new headquarters in Washington. (AP Photo/Andrew Harnik)

Congress created the CFPB in response to the 2008 financial crisis, giving the agency regulatory over a financial products like mortgages and student loans. Originally the brainchild of then-Harvard Law professor Elizabeth Warren, the CFPB is an independent agency with a director who serves five-year terms and can be only fired “for inefficiency, neglect of duty, or malfeasance in office.”

It was those words, known as a for-cause removal provision, the justices scrutinized Tuesday as they attempted to determine whether they constitute an undue restriction on the president’s constitutional prerogatives.

The more liberal wing of the court was more accepting of arguments that Congress has significant room to limit the president’s removal authority, with Justice Ruth Bader Ginsburg saying the for-cause removal restriction is a “modest” one meant to prevent the president from simply installing someone who is loyal as the head of an agency meant to act in the best interest of consumers.

“You talked about liberty,” Ginsburg said. “Now whose liberty are we speaking of? What about the consumers? I mean, Congress passed this law so that the consumers would be better protected against financial fraud. And you’re talking about, I suppose the liberty of your client. But what about the people that Congress was concerned about, that is, the consumers who were not well protected by the array of agencies that were handling these problems?”

But more conservative justices saw the CFPB’s structure, including the five-year term, as fundamentally limiting the president’s ability to control the policy of his or her administration.

“It’s really the next president who’s going to face the issue, because the head of this agency will go at least three or four years into the next president’s term, and the next president might have a completely different conception of consumer financial regulatory issues yet will be able to do nothing about it,” Justice Brett Kavanaugh said, noting the current CFPB head will serve through 2023.

Leading the latest fight against the CFPB is Seila Law, a California-based debt-relief law firm that raised the constitutional argument while fighting an investigative request from the agency.

While for-cause removal provisions are common in independent agencies through the federal government, such agencies are typically led by a multimember commission, rather than by one person. Arguing for Seila Law on Tuesday, Kannon Shanmugam said the power given to the CFPB’s director, coupled with the for-cause removal provision, is virtually unprecedented and a threat to the separation of powers and individual liberty.

“Never before in American history has Congress given so much executive power to a single individual who does not answer to the president,” Shanmugam said. “By significantly limiting the president’s ability to remove the CFPB’s director, Congress violated the core presidential prerogatives to exercise the executive power and to take care that the laws be faithfully executed.”

Shanmugam said the court’s 1935 decision in Humphrey’s Executor v. United States, which upheld Congress’ ability to create independent agencies, carved out an exception for multimember commissions to the general rule that the president can fire executive branch officers at will.

The Trump administration has declined to defend the CFPB, and Solicitor General Noel Francisco argued Tuesday the for-cause removal provision makes the head of a powerful agency unaccountable to the voters.

“The president stands for election, the director of the CFPB does not,” Francisco said. “So if the director is insulated from presidential oversight, then her exercises of executive power are insulated from democratic control and that’s not the structure that our Constitution creates and requires.”

He further said there is no limiting principle on the argument that Congress can so insulate agency heads, to the point that it could make the president’s entire cabinet subject to for-cause removal provisions.

Where Seila Law and the Trump administration disagree is what the court should do about the problem they agree the CFPB poses. Shanmugam argued the court should strike down the CFPB entirely, while Francisco urged the court to simply delete the for-cause removal provision and allow the agency to continue operating with a director subject to at-will firing.

Some of the justices pressed Shanmugam on whether his case should even be at the court at all, given the process is not adversarial and the investigative demand might not depend on the removal provision.

On the merits of the dispute, Justice Elena Kagan wondered why the parties were making the president’s ability to remove executive branch officers so central to the ability to control executive branch policy.

“There are so many things that go into the question of presidential control,” Kagan said. “Removal has historically been very difficult for presidents to exercise as a way of controlling people, because the people you want to remove the most, there are all kinds of political constraints on why you shouldn’t remove them.”

With the administration not defending the CFPB, the court called on Kirkland and Ellis partner Paul Clement, a former U.S. solicitor general, to serve as a friend of the court to defend the agency’s structure.

Clement argued Congress has significant authority to dictate the structure of the executive branch. But if it encroached on a core power given to the president in the Constitution, he continued, that authority would have the natural limit of being invalid. That would take away Francisco’s concern that Congress could add for-cause removal provisions for cabinet agencies.

“So they can’t put somebody essentially in the cabinet or in the White House staff and then have that person subject to for-cause removal,” Clement said. “Second, there’s a constitutional backstop, an absolute constitutional backstop, which is those authorities that the Constitution assigns directly to the president — so the State Department, the Defense Department, pardon power, there’s a few others — those cannot be subject under any circumstances to anything other than at-will removal.”

House General Counsel Douglas Letter, who argued as a friend of the court supporting the CFPB, advanced a similar limit on Congress’ authority.

Clement also offered something of a middle ground, saying the court could give a broader reading to the CFPB’s for-cause removal provision.

Chief Justice John Roberts earlier in the arguments seemed receptive to such a ruling, but later indicated he was concerned about the rush of litigation it would likely spawn by deposed executive branch officials.

Justice Neil Gorsuch, who earlier excoriated Clement over what he perceived as an unfair dig at Francisco, also took issue with that invitation, saying it would amount to little more than a convoluted overruling of Humphrey’s Executor. 

“What’s the difference between that and overruling Humphrey’s and being honest about what we’re doing, Mr. Clement?” Gorsuch asked.

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