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U.S. Supreme Court Rules CFPB Structure Unconstitutional

The long-awaited Opinion from the United States Supreme Court has been rendered: The structure of the Consumer Financial Protection Bureau (the “CFPB”), and specifically its appointment of a single director, removable only for cause, is unconstitutional. The Court rendered its 5-4 Opinion, authored by Chief Justice Roberts, earlier this week. The Supreme Court held that the CFPB’s current structure violates the Separation of Powers clause of the U.S. Constitution. The Supreme Court reasoned that the CFPB “lacks a foundation in historical practice and clashes with constitutional structure by concentrating power in a unilateral actor insulated from Presidential Control.” The Opinion went on to provide for the longstanding history of the U.S. President’s powers to remove executive officials, with very limited exception.

Defenders of the CFPB’s statutory structure cited to other agencies that have operated under a similar structure, including the Social Security Administration and the Federal Housing Finance Agency. But, the Court held, the former is distinguishable because it does not have the authority to conduct enforcement actions. And the latter is subject to ongoing criticism and constitutional challenges. The Court noted that the Fifth Circuit recently held the FHFA to be unconstitutional in Collins v. Mnuchin, 938 F. 3d 553, 587-588 (2019).

While the High Court was split over first issue, a more overwhelming 7-2 majority ruled on the second issue at hand that unconstitutional “removal” clause of the statutes creating the CFPB are severable from the other statutory provisions. Therefore, the Court held, the CFPB can continue to operate under the existing statutes.

Justice Kagan authored a dissent to the majority opinion, arguing that the President had ample power under the existing structure to remove the CFPB Director when appropriate. She cautioned about why the CFPB was created in the first place and that by undermining its independence, the majority Opinion would send “Congress back to the drawing board.”

Going forward, we now know that the CFPB is not going anywhere, but current and future Presidents will exercise more control over who will be in charge of the Bureau. What is not clear from the Opinion is the impact that it will have on enforcement actions ratified by “unconstitutionally insulated” directors. Because Mick Mulvaney was an acting director terminable-at-will, actions ratified by him are likely protected under the Opinion. But any actions ratified by the first-appointed director, Richard Cordray, or current director Kathleen Kraninger, may face legal challenges going forward.