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Supreme Court Rules CFPB’s Structure Must Be Modified

Philip R. Stein

While declining to rule that the Consumer Financial Production Bureau (CFPB) itself is unconstitutional — a position taken by many of the agency’s opponents since it began operating in July 2011 — the U.S. Supreme Court ruled today, June 29, 2020,that the CFPB’s structure violates the Constitution. In a 5-4 decision, the Court held that the structure put in place when the Dodd-Frank Act created the CFPB unconstitutionally insulates the agency from presidential oversight and must be modified. In so holding, the Court rejected a restriction that the Dodd-Frank Act placed on the president’s ability to fire the agency’s director.

The CFPB has had a single director structure since its inception. Dodd-Frank barred the president from firing that director, except in instances of “inefficiency, neglect of duty or malfeasance.” Writing the Court’s majority opinion, Chief Justice John Roberts asserted that the Dodd-Frank Act’s limits on the president’s power to remove the director “at will” violate the Constitution’s separation of powers clause. Accordingly, the Court held, Congress went too far with the tenure protection it gave the CFPB’s director.

“While we need not and do not revisit our prior decisions allowing certain limitations on the president’s removal power, there are compelling reasons not to extend those precedents to the novel context of an independent agency led by a single director,” Chief Justice Roberts wrote.

However, the Supreme Court did not strike down the CFPB entirely, declaring instead that the agency’s constitutional flaw could be fixed relatively simply. Merely eliminating the restriction limiting removals to those “for cause” will suffice, the Court directed. “[T]he CFPB director’s removal protection is severable from the other statutory provisions bearing on the CFPB’s authority. The agency may, therefore, continue to operate, but its director, in light of our decision, must be removable by the president at will.”

The CFPB thus has survived this challenge to its very existence. It has lost, however, the ability to insulate its director from possible reprisal by a president displeased with agency actions or objectives.

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