Consumer Financial Protection Bureau is constitutionally structured, 9th Circuit rules

The Consumer Financial Protection Bureau is constitutional, the 9th U.S. Circuit Court of Appeals has ruled, thwarting for the time being efforts on the part of its detractors to force a circuit split on the issue.

In a short opinion published Monday, a three-judge panel of the 9th Circuit largely adopted the reasoning of an en banc decision from the District of Columbia U.S. Circuit Court of Appeals, which ruled last year that the body's leadership structure is compatible with the Constitution.

"[T]he 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," wrote Judge Paul J. Watford, citing, among others, the U.S. Supreme Court's landmark 1935 decision upholding the structure of the Federal Trade Commission. Humphrey's Executor v. United States, 295 U.S. 602 (1935).

"The Supreme Court is of course free to revisit those precedents, but we are not," he continued, joined by Judge Susan P. Graber and U.S. District Judge Jack Zouhary, visiting from the Northern District of Ohio.

Entities subject to investigation by the bureau have fought its authority in court by arguing that its director -- who is appointed by the President for a fixed term and can only be fired for cause, not at will -- impedes the power of the executive office.

That theory briefly became federal case law in 2016 when now-Justice Brett M. Kavanaugh authored a lengthy opinion on the D.C. Circuit finding the bureau unconstitutionally structured. He differentiated the CFPB from the FTC by noting that the latter is headed by several board members, rather than just one.

"The CFPB's concentration of enormous power in a single unaccountable, unchecked Director poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than a multi member independent agency does," Kavanaugh wrote in dissent when an en banc D.C. Circuit reversed course in 2018.

A federal judge in New York adopted Kavanaugh's theory in a 2018 ruling declaring the bureau unconstitutionally structured.

That decision is pending review before the 2nd U.S. Circuit Court of Appeals, and a ruling that will either solidify the growing body of case law supporting the organization's structure or present an authoritative split on the issue, making high court review more likely.

Monday's decision involved an Orange County law firm, Seila Law LLC, under investigation for possibly violating telemarketing rules in its efforts to find clients for its debt-relief services. U.S. District Judge Josephine L. Staton ruled in 2017 that Seila needed to comply with investigation demands issued by the bureau, a decision Seila appealed.

Watford continued his analysis by explaining that the Humphrey's Executor court determined that agencies like the FTC are "quasi-legislative or quasi-judicial," necessitating some sort of independence from the president.

"This reasoning, it seems to us, applies equally to the CFPB, whose Director is subject to the same for-cause removal restriction," Watford said.

The 9th Circuit also threw out statutory claims advanced by Seila that a civil investigative demand from the CFPB was improper. CFPB v. Seila Law, 2019 DJDAR 3532 (9th Cir. May 6, 2019).

Anthony Bisconti, an associate at Bienert Miller & Katzman PLC who argued the case for Seila, did not respond to a request for comment by press time. Neither did the Consumer Financial Protection Bureau's media office.