Will the Supreme Court Decimate the CFPB? Latest Developments

Financial Services Law

Even though the Supreme Court generally moves relatively slowly, the Court’s recent decision to grant certiorari in the CFPB v. Seila Law case is forcing courts and litigants to adjust quickly. And the Supreme Court is itself taking a number of procedural steps to move the case forward. What happens next could reshape consumer financial regulation for years to come.

What happened

In Seila Law, the law firm petitioner is challenging the validity of a civil investigative demand (CID) issued by the Consumer Financial Protection Bureau (CFPB). Seila Law seeks to invalidate the entire CFPB, and seeks that draconian result.

The Supreme Court case will present two questions. First, “[w]hether the vesting of substantial executive authority in the [CFPB], an independent agency led by a single director, violates the separation of powers.” Second, the Court likewise asked the litigants, if the CFPB is “found unconstitutional on the basis of the separation of powers, can 12 U.S.C. §5491(c)(3) [i.e., addressing “for cause” removal of the director] be severed from the Dodd-Frank Act?”

As our recent article notes, both the CFPB and the Department of Justice concur that the CFPB structure is indeed unconstitutional but assert that the appropriate remedy is to sever the for-cause removal provision and enforce the CID.

With the CFPB lacking a true defender, the Supreme Court has appointed Paul Clement to represent the view that the agency is constitutional. Clement was Solicitor General during the George W. Bush administration.

Impact on Other CFPB Court Challenges

To no one’s surprise, the Supreme Court’s decision to grant certiorari in Seila Law is having an immediate impact on other cases challenging the constitutionality of the CFPB.

We have previously discussed the efforts in All American Check Cashing, in which All American is on interlocutory appeal to the Fifth Circuit from a district court order upholding CFPB constitutionality. The case will be argued on December 4, 2019, and the Fifth Circuit asked has for supplemental briefing. But All American Check Cashing has likewise filed a Petition for a Writ of Certiorari so that its case may be heard alongside Seila Law. In its petition, All American claims that, unlike Seila Law, its case “squarely presents” the issue of whether a later ratification of prior CFPB action can cure constitutional defects.

The Ninth Circuit is also paying attention to Seila Law. Even though it heard oral argument in a related challenge to CFPB constitutionality, the Ninth Circuit has now issued an order withdrawing submission of the appeal. Likewise, the court has stayed all further proceedings pending the Supreme Court’s decision.

In New York, the Second Circuit is addressing constitutionality in the RD Legal case, an appeal from a lower court decision deeming the CFPB’s structure unconstitutional, but going further and likewise striking the entire Title 10 of Dodd-Frank (the portion covering the CFPB). Even though the case is scheduled for a November 21, 2019, argument, the CFPB has requested an adjournment pending the Seila Law ruling. RD Legal opposes the motion, in part because the Supreme Court will not be addressing whether RD Legal is even a “covered person” for purposes of the Consumer Financial Protection Act.

Impact on Other Agencies

The RD Legal ruling addressed just Title 10, and nothing in any of these rulings should impact either the remainder of Dodd-Frank or the constitutionality of other major federal regulators, with the exception, perhaps, of the Federal Housing Finance Agency, which has a similar for-cause removal provision. We discussed this issue in a recent article. By way of example, the Comptroller of the Currency may be removed for any “reason” as long as that reason is communicated to the Senate, per 12 U.S.C. § 2. When the D.C. Circuit upheld the CFPB’s constitutionality in PHH Mortgage, it noted that its decision “cannot reasonably be taken to invite Congress to make all federal agencies (or various combinations thereof) independent of the President. The President’s plenary authority over his cabinet and most executive agencies is obvious and remains untouched by our decision.”

Why it matters

There are so many directions the Supreme Court could take. Our read continues to be that the Court will find the for-cause provision unconstitutional and sever the provision from Title 10 to cure the issue. We likewise believe the Supreme Court will largely sidestep the remaining issues. Whether Chief Justice Roberts decides to bring other litigants into the mix, and who gets assigned to write the Court’s opinion, is anyone’s guess. Justice Kavanaugh would probably top the list of contenders.



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