Future of consumer protection bureau is in high court’s hands

The future of the Consumer Financial Protection Bureau will be determined by the U.S. Supreme Court, which decided Friday to accept a case filed by an Orange law firm that argues the agency, created by Congress in the wake of the 2008 economic crash, is unconstitutional.

Seila Law LLC, which was under investigation for possibly breaking telemarketing laws while finding clients for debt relief services, challenged a civil investigative demand by the agency on the grounds that its structure violated the separation of powers clause of the Constitution.

The agency is led by a single director, appointed to a five-year term, who does not serve at the pleasure of the president but instead can only be removed for "inefficiency, neglect of duty or malfeasance in office."

Critics of the bureau cite that it is led by a single person, as opposed to multiple-member commissions, to distinguish it from federal agencies whose structure has been found constitutional.

"The Constitution specifies the official who must exercise that sort of executive power: the President, acting either personally or through subordinate officers who are accountable to him and whose actions he can control," wrote U.S. Solicitor General Noel J. Francisco in support of the law firm's petition for the Supreme Court to take the case. Seila Law LLC v. Consumer Financial Protection Bureau, 19-7.

Francisco argues the single-director structure distinguishes the consumer protection bureau from the Federal Trade Commission. The U.S. Supreme Court ruled in favor of the FTC's structure, with limits on the president's power, in a 1935 case that has not been overturned. Humphrey's Executor v. United States, 295 U.S. 602 (1935).

U.S. District Judge Josephine L. Staton of Santa Ana rejected the law firm's complaint, and a 9th U.S. Circuit Court of Appeals panel affirmed her decision in May.

Citing Humphrey's Executor and a more recent case, Judge Paul J. Watford wrote: "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. ... The Supreme Court is of course free to revisit those precedents, but we are not."

The 9th Circuit agreed with the U.S. Court of Appeals for the D.C. Circuit, which also sided with the agency in January 2018. Then-Judge Brett M. Kavanaugh wrote a sweeping dissent to an en banc ruling upholding the agency's management structure in an attack on a host of federal agencies, including the Federal Communications Commission and the Securities and Exchange Commission.

"The independent agencies collectively constitute, in effect, a headless fourth branch of the U.S. Government," Kavanaugh wrote. "Because of their massive power and the absence of Presidential supervision and direction, independent agencies pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances."

Kavanaugh, who was appointed to the Supreme Court by President Donald J. Trump, will now be one of the justices to decide the agency's fate.

The agency itself, under a Trump administration appointee, has switched sides even after two appellate court wins. Francisco cited Kavanaugh's dissent in his court filing,

Douglas N. Letter, general counsel of the U.S. House of Representatives, has asked the Supreme Court to defend the law it passed and argued it allows the president who believes a consumer financial bureau director is not enforcing the statute to replace that person.

"If the President determines that the CFPB Director is failing in her duty to enforce the consumer protection laws, the President can remove and replace the Director," Letter wrote.

Anthony R. Bisconti, a San Clemente-based partner with Bienert Katzman PC who argued the Seila Law case before the 9th Circuit and is part of the Supreme Court appeal, said in a phone interview the agency should be found unconstitutional because its director "has broad executive powers without the normal checks and balances of the executive or congressional branch."

He said the high court could rule that the single director could be severed from the rest of the law, passed as part of the Dodd-Frank statute, or the justices could conclude the management structure is such an essential part of the law that it cannot be salvaged.