The U.S. Supreme Court agreed to consider giving the president broad power to replace the director of the Consumer Financial Protection Bureau, accepting a case that could curb the independence of the watchdog agency tasked with regulating mortgages and credit cards.
The justices said they will hear an appeal from Seila Law, a California law firm being investigated by the CFPB over its sales pitches to indebted consumers. The firm is trying to derail the probe by arguing that the bureau was set up in violation of the constitutional separation of powers.
The 2010 law that set up the CFPB says the director can be removed only for “inefficiency, neglect of duty, or malfeasance in office.”
The case could have implications for a fight between the Federal Housing Finance Agency and Fannie Mae and Freddie Mac investors over the so-called net worth sweep, an Obama-era policy that requires the companies to send nearly all their profits to the Treasury. The investors have filed a Supreme Court appeal that raises similar issues about the agency’s structure.
U.S. Solicitor General
During most of Trump’s first year as president, the CFPB had a holdover director,
Ironically, a Supreme Court victory for the administration would make Kraninger more vulnerable to being replaced should a Democrat win the 2020 presidential election. The agency was the brainchild of Senator
The CFPB, set up in the wake of the 2008 financial crisis, regulates credit cards, auto loans and other consumer finance products. Supporters say its independence helps insulate it from political pressures, letting it focus on protecting consumers from financial scams and predatory loans. Critics say it has stifled economic growth through over-regulation.
The court’s newest justice,
In upholding the agency, a San Francisco-based federal appeals court pointed to a 1935 Supreme Court decision that helped lay the legal groundwork for the modern administrative state. That ruling, Humphrey’s Executor v. United States, upheld provisions that similarly insulate the five members of the Federal Trade Commission from being fired in the absence of misconduct.
The Supreme Court reaffirmed that ruling in a 1988 decision that backed federal use of an independent counsel.
“Those cases indicate that the for-cause removal restriction protecting the CFPB’s director does not impede the president’s ability to perform his constitutional duty to ensure that the laws are faithfully executed,” Judge
Seila Law contends the CFPB is different from the FTC because it has a single director, rather than a multi-member commission. FTC commissioners serve seven-year terms that expire at different times, and no more than three members can be of the same political party.
“An agency with a multi-member structure cannot act without consensus, making it harder for the agency to infringe individual liberty,” Seila argued in its appeal. “A single director faces no similar constraint on his decision.“
The case is Seila Law v. CFPB, 19-7.
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