Supreme Court: Single-Director Structure of CFPB Violates Constitution’s Separation of Powers
On June 29, 2020, the United States Supreme Court held that restrictions on the President of the United States’ ability to fire a single director of a federal agency violates the separation of powers clause of the United States Constitution.
The Consumer Financial Protection Bureau (CFPB) was created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act following the 2008 financial crisis. CFPB serves as an independent watchdog with jurisdiction over a wide range of mortgage, loan, debt collection, and other financial sector entities.
This case came about when CFPB initiated an investigation into whether a California-based law firm that provided debt relief services was violating telemarketing sales rules. In a response to CFPB’s request for documents, the law firm argued that CFPB’s structure was unconstitutional because it has just one director, who has significant authority but can only be removed for “cause” due to Dodd-Frank’s provision that the director can only be terminated by the President “for inefficiency, neglect of duty, or malfeasance in office.”
The United States Court of Appeals for the Ninth Circuit held that the structure of the CFPB was constitutional, and cited a 1935 decision by the Court in Humphreys Executor v. United States, 292 U.S. 602 (1935). In Humphreys, the Court held that structure of the Federal Trade Commission was constitutional. The FTC has five members that can only be removed for cause, much like the single director of the CFPB.
After losing at the Ninth Circuit, the law firm appealed to the Supreme Court. In a 5-4 opinion written by Chief Justice John Roberts, the Court held that the CFPB’s “leadership by a single individual removable only for inefficiency, neglect or malfeasance violates the separation of powers.”
The court observed that “Article II of the Constitution vests the entire ‘executive Power’ in the President alone, but the Constitution presumes that lesser executive officers will assist the President in discharging his duties.” According to the Court, the President’s authority “includes the power to supervise—and, if necessary, remove—those who exercise the President’s authority on his behalf.”
The Court held that there were only two limited exceptions to the President’s power to remove high-ranking executive branch officials. First, Humphreys Executor exception: Congress has the ability to create “for cause” conditions on the removal of members of “a multimember body of experts, balanced along partisan lines, that performed legislative and judicial functions and was said not to exercise any executive power.” The second exception is the “independent counsel” exception. The Court held in Morrison v. Olson, 487 U.S. 654 (1988) that Congress could place “for cause” removal restrictions on an “inferior officer” like an independent counsel who “had limited duties and no policymaking or administrative authority.”
The Court distinguished the CFPB’s director from officers in Humphreys Executor and Morrison, finding that “[u]nlike the FTC, who were balanced along partisan lines and served staggered terms to ensure the accumulation of institutional knowledge, the CFPB Director serves a five-year term that guarantees abrupt shifts in leadership and the loss of Agency expertise.” The Court also noted that the CFPB Director was no mere “inferior” officer, and “possesses significant administrative and enforcement authority, including the power to seek daunting monetary penalties against private parties in federal court—a quintessentially executive power not considered in Humphrey’s Executor.”
The Court also held that the CFPB was “incompatible with our constitutional structure,” which according to Chief Justice Roberts “scrupulously avoids concentrating power in the hands of any single individual” other than the President, who is “directly accountable to the people through regular elections.” The Court explained that the “single-Director structure contravenes this carefully calibrated system by vesting significant governmental power in the hands of a single individual who is neither elected by the people nor meaningfully controlled (through the threat of removal) by someone who is.”
For the above stated reasons, the United States Supreme Court held in a 5-4 decision that “for cause” restrictions on the removal of the CFPB director are unconstitutional.
Read the full opinion: Seila Law LLC v. Consumer Financial Protection Bureau.
This case law update was written by Conor D. Dirks, Associate Attorney, Shaw Bransford & Roth, PC.
For thirty years, Shaw Bransford & Roth P.C. has provided superior representation on a wide range of federal employment law issues, from representing federal employees nationwide in administrative investigations, disciplinary and performance actions, and Bivens lawsuits, to handling security clearance adjudications and employment discrimination cases.