Court Conservatives Disagree on Curbing Agencies in CFPB Case

Conservative U.S. Supreme Court justices considering the constitutionality of the CFPB can’t radically reshape the bureau without throwing other agencies’ structures into doubt.

Oral arguments Tuesday in Seila Law LLC v. Consumer Financial Protection Bureau highlighted the perils to other agencies, like the Federal Reserve, should the conservative majority decide to strike Dodd-Frank Act provisions that limit the president’s ability to fire the bureau’s director.

The arguments also provided hints that conservative justices may disagree on the remedy if they decide to rule on whether the CFPB is unconstitutionally structured, potentially further narrowing the path for a decision.

“They are not going to make broad, sweeping conclusions about independent agencies in general,” said Joann Needleman, the leader of Clark Hill PLC’s Consumer Financial Services Regulatory and Compliance Practice Groups.

Conservative Split

The central question in Seila Law’s challenge to the CFPB is whether for-cause removal protections that prevent the president from firing the bureau’s director at will provide too much of a limit on the president’s powers.

Seila Law, a California debt collection firm, argued before the Supreme Court that the for-cause removal protection provision in the 2010 Dodd-Frank Act should be eliminated, and with it the CFPB in its entirety.

The Trump administration, including the CFPB, agreed with Seila Law’s position on constitutionality. The government’s position differed by saying Dodd-Frank’s severability clause would allow the high court to rule on the constitutional question but merely carve it out and allow the CFPB to continue to function unimpeded.

The problem for the conservative justices is that they may disagree about how far to go in curbing the CFPB’s independence.

The court’s most conservative members, like Justice Clarence Thomas, may want to overturn longstanding precedent like the 1935 Humphrey’s Executor v. United States decision that allowed for for-cause removal protections for Federal Trade Commission members.

Questions from Chief Justice John Roberts and Justice Brett Kavanaugh at the oral arguments indicate that other conservatives do not want to go that far.

Rewriting the Text?

Kavanaugh has previously ruled on the CFPB’s constitutionality during his tenure on the U.S. Court of Appeals for the D.C. Circuit. In that case, PHH Corp. v. CFPB, Kavanaugh said the CFPB’s constitutional deficiencies could be cured simply by removing that clause from the statute.

Kavanaugh made the severability point repeatedly during the oral arguments.

“But wouldn’t we be rewriting [Dodd-Frank] by ignoring the text of the severability clause?” he asked Kannon Shanmugam, the Paul Weiss Rifkind Wharton & Garrison LLP partner representing Seila Law.

Kavanaugh’s questions could be viewed as an attempt to get other conservative justices to agree to a narrow reshaping of the CFPB that does not address other independent agencies’ for-cause removal protections, said Mike Landis, the litigation director for the U.S. Public Interest Research Group.

“The only question would be on the severability piece,” he said.

Roberts Worries

Roberts, on the other hand, has affirmed the constitutionality of for-cause removal protections, having ruled them constitutional in the 2009 Free Enterprise Fund v. Public Company Accounting Oversight Board decision.

What Roberts didn’t like in that case was a double layer of protections from the president terminating members, and limited those.

Roberts raised similar, although not entirely parallel, concerns about the extensive efforts Congress made to insulate the CFPB from political control. The chief justice asked questions regarding the CFPB’s funding through the Federal Reserve, and not the congressional appropriations process.

Solicitor General Noel Francisco, Paul Clement, the court-appointed amicus defending the CFPB’s constitutionality, and Douglas Letter, counsel for the House of Representatives, all faced similar queries from Roberts.

The chief justice may have been probing whether the CFPB’s funding mechanism “further supports the notion that removal power may be important here where a single-director CFPB is not subject to other traditional oversight,” said Gretchen Sperry, the chair of Hinshaw & Culbertson LLP’s appellate practice.

Coming Together

From there, getting to a unified opinion may be difficult, given the diverging views of the conservative justices.

Roberts and Kavanaugh appeared to have concerns about invalidating for-cause removal protections for all agencies, with both Clement and Letter noting that removing all for-cause removal protections could lead to more direct presidential influence on the Federal Reserve’s chairman.

“We don’t want the president to juice up interest rates right before a presidential election, so we’re going to give that to somebody who is insulated,” Clement said at oral arguments.

Those arguments may hold sway, and could force the conservative justices to write a narrow opinion that clearly lays out the CFPB’s unique characteristics in order to prevent other agencies from being affected, Needleman said.

“I think if there’s any decision, whether it’s going to be yay or nay, it’s going to be extraordinarily narrow. And it’s only going to involve this case,” she said.

The case is Seila Law LLC v. Consumer Financial Protection Bureau, U.S., 19-7, Oral arguments 3/3/20.