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The War on the Consumer Financial Protection Bureau Goes to Court

The Supreme Court will decide whether Elizabeth Warren’s brainchild will continue to exist, or if it’ll merely expand Donald Trump’s power over it.

Chip Somodevilla/Getty Images

For Massachusetts Senator Elizabeth Warren, Super Tuesday could mark a turning point in her campaign for the Democratic presidential nomination. It may also be a pivotal day for her greatest accomplishment in public life. The Supreme Court will hear oral arguments on Tuesday in Selia Law v. Consumer Financial Protection Bureau, as it determines whether the agency’s structure is constitutional.

Warren proposed the Consumer Financial Protection Bureau’s creation in 2007, pitching it as a single, unified entity that could enforce the federal government’s disparate consumer protection laws. Her idea drew widespread support in the aftermath of the 2008 financial crash and the start of the Great Recession, eventually becoming law in the Dodd-Frank package of Wall Street reforms in 2010. Conservatives have bitterly opposed the agency since its inception. Now they have a chance not only to rein it in but perhaps even to restructure the federal bureaucracy along the way.

The case springs from a battle between the CFPB and a California law firm. In 2017, the CFPB began investigating whether Selia Law had violated federal consumer protection laws, and sent the firm a formal request for documents and other records. Selia refused to comply and filed a lawsuit to challenge the request, arguing that the agency’s structure violated the Constitution’s separation of powers because the president couldn’t fire its director at will. Both a federal district court and the U.S. Court of Appeals for the Ninth Circuit disagreed with that assessment and upheld the agency’s request.

Why would the CFPB’s structure matter? For starters, not all federal agencies are created alike. Some, like the Food and Drug Administration or the National Park Service, operate within the 15 federal departments that answer to members of the Cabinet, who in turn answer to the president. Others, like the Central Intelligence Agency or NASA, have directors or administrators who directly answer to the president themselves. Leaders of both types of agency are typically nominated by the president and confirmed by the Senate. Most importantly, they can also be fired by the president for any reason or none at all.

Other parts of the federal government operate a little differently, however. Some of the nation’s key regulatory agencies are instead run by multimember bodies whose members are appointed by presidents but can only be fired by them for cause. The Securities and Exchange Commission, for example, is led by a five-member panel with a chairman and four commissioners. The Federal Election Commission, the Federal Reserve’s board of governors, and a handful of other agencies share similar features, including staggered terms and explicit limits on how many members from one party can serve together at one time.

Congress structured those agencies with a degree of political independence from the president so they could effectively carry out their duties. Lawmakers believed, for example, that the nation’s financial industry would suffer if the markets thought that interest rates were being set by the White House instead of nonpartisan experts. After the New Deal added a wave of new independent agencies, the Supreme Court heard a challenge to the Federal Trade Commission’s structure in the 1935 case Humphrey’s Executor v. United States. The justices unanimously concluded that since the FTC wielded what it described as “quasi-legislative” or “quasi-judicial” powers instead of purely executive ones, Congress could take steps to insulate it from political pressure.

The CFPB, by comparison, is currently led by a single director who serves a five-year term and can’t be fired, except in cases of “inefficiency, neglect of duty, or malfeasance.” In its brief for the court, Selia Law argued that this structure placed it outside the scope of Humphrey’s Executor. “The CFPB’s single-director structure diminishes freedom from governmental tyranny,” the firm told the court. “As the Constitution itself implicitly recognizes, multi-member bodies protect the people from arbitrary decision-making. A multi-member structure fosters deliberation and impedes regulatory capture. The lack of that protection is particularly alarming as to the CFPB, whose director wields enormous rulemaking and law-enforcement powers that, when exercised without political accountability, pose a serious threat to individual liberty.”

This argument will likely find a receptive audience in the court’s newest member. When he served on the D.C. Circuit Court of Appeals, Justice Brett Kavanaugh heard a similar challenge to the CFPB’s structure. In that case, PHH v. Consumer Financial Protection Bureau, the panel upheld the agency’s structure as constitutional. “The Supreme Court’s removal-power decisions have, for more than eighty years, upheld ordinary for-cause protections of the heads of independent agencies, including financial regulators,” Judge Nina Pillard wrote for the majority, in her January 2018 opinion. “That precedent leaves to the legislative process, not the courts, the choice whether to subject the Bureau’s leadership to at-will presidential removal.”

Kavanaugh dissented from the panel’s decision in vivid terms. “This is a case about executive power and individual liberty,” he declared in his opening line. He described how independent agencies “collectively constitute, in effect, a headless fourth branch of the U.S. government” and “hold enormous power over the economic and social life of the United States.” Without a president to keep them in check, Kavanaugh warned, these agencies “pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.”

In most cases, he noted, Congress curbed that danger by diffusing the agency’s leadership across multiple people. That feature “reduces the risk of arbitrary decision-making and abuse of power, and helps protect individual liberty,” he wrote. But Kavanaugh found no such checks on the CFPB director’s power to enforce consumer protection laws. “Indeed, other than the president, the director enjoys more unilateral authority than any other official in any of the three branches of the U.S. government,” he wrote. He ultimately concluded that the CFPB’s current structure was incompatible with the Constitution. Though Kavanaugh framed it as a threat to American liberty, the outcome also fit well within his affinity for unfettered executive power.

In theory, the Justice Department would normally be charged with defending the CFPB’s constitutionality before the high court. But the Trump administration took the unusual step of effectively siding with the people who had sued it. In a brief filed by Solicitor General Noel Francisco, the administration frames the for-cause provision as a threat to executive power. “Single-headed independent agencies would pose heightened dangers to the president’s control of the executive branch,” Francisco warned the justices. “Extending Humphrey’s Executor to this context would allow Congress to turn virtually the entire executive branch into a series of independent Departments with Heads shielded from presidential supervision and accountability.”

So who’s left to defend the CFPB from its foes within and without? Since neither of the actual parties would do so, the Supreme Court tapped prominent appellate lawyer Paul Clement to defend the agency’s constitutionality. In his brief, Clement tells a very different view of executive power from that of either of the parties. He notes that while the Constitution describes how executive branch officers may be appointed, it does not explicitly describe how they may be removed, beyond impeachment. What’s more, the framers of the Constitution themselves did not have a coherent view of removal: “In Federalist 77, for example, [Alexander] Hamilton took it for granted that ‘the consent of [the Senate] would be necessary to displace as well as to appoint’ officers,” Clement wrote.

His review of Supreme Court precedent also found little evidence to support the positions held by Selia Law or the Trump administration. “In short, every time this court has confronted an effort to assign the president’s removal authority elsewhere, it has rejected it in closely divided opinions that reflect the Constitution’s silence and the Framers’ ambivalence on such questions,” he wrote. “And every time this court has confronted a provision that leaves the removal authority with the president, but imposes modest limits on his discretion, the court has upheld the provision either unanimously or nearly so.”

Clement noted that the court has intervened to stop lawmakers from handing themselves the power to remove executive branch officials by means other than impeachment. But he argued that Congress has long held broad authority to structure the federal departments and their operations without infringing upon the separation of powers. “As long as the president is the one exercising the power to remove executive-branch officers, modest restrictions on that authority do not cross a constitutional line,” he wrote.

Whether the court will accept Clement’s reasonable view of congressional authority is unclear. Even before Kavanaugh joined the court, Chief Justice John Roberts and his conservative colleagues often took an expansive view of executive power. The justices could ultimately conclude that Humphrey’s Executor is still good law but refuse to extend it to the CFPB director. Alternatively, they could narrow or overturn Humphrey’s Executor, a move for which both Selia Law and the Trump administration expressed support, and open the door to direct presidential control over independent agencies. Such an outcome would likely please President Donald Trump, who has long expressed interest in firing the current Federal Reserve chairman for his approach to monetary policy.

If the justices don’t uphold the CFPB’s current structure, they face a monumental choice about the remedy. In its brief for the court, Selia Law argued that the for-cause provision can’t be severed from the rest of Title X of the Dodd-Frank Act, which created the CFPB in the first place. That raises the possibility that the court could strike down the entire agency in one fell swoop. “To give the President the power to remove the Director at will would radically reshape the CFPB, creating a mutant version of the agency that Congress envisioned—one that would still be unaccountable to Congress, yet fully within presidential control,” the firm argued.

But so drastic a step may be a tough sell for the Supreme Court. After all, Congress clearly intended for the agency to exist in some form. Kavanaugh himself wrote in the 2018 case that the for-cause provision could be severed from the rest of the statute, and the Trump administration adopted the same position in this case as well. What’s more, such a move could put the court in the awkward position of demolishing a presidential candidate’s signature achievement in the middle of an election year. The Roberts court may instead satisfy itself with a breathtaking expansion of presidential power.