Director Kraninger Calls the CFPB Unconstitutional
In a brief filed yesterday, the Trump Administration urged the U.S. Supreme Court to review the constitutionality of the Consumer Financial Protection Bureau (CFPB), arguing that the federal agency is unconstitutionally structured. The brief also pointed out that CFPB Director Kathy Kraninger had recently “reached the same conclusion.”
This long standing dispute centers on the fact that the director of the CFPB Director can only be removed for “inefficiency, neglect of duty or malfeasance in office.” This combined with the fact that the CFPB is led by a single director, as opposed to a commission, provides the director of the agency substantial power in the regulatory space.
The CFPB has successfully defended their constitutionality against many legal cases over the years. Mick Mulvaney, who was the acting-director of the agency for most of 2018, argued that the CFPB was constitutional as long as it was led by an acting-director since he was fireable “at-will.”
In December 2018, Director Kathy Kraninger took over the CFPB. A few months into her tenure, the CFPB stated in court that the federal agency was in fact constitutional. “Congress’ decision to head the bureau with a single director does not undermine the president’s oversight,” said the CFPB. “If anything, the bureau’s single-director structure enhances the president’s ability to execute the laws — by holding his subordinates accountable for their conduct.”
In a surprising twist, Director Kraninger announced yesterday that the CFPB is now taking the stance that the federal agency is unconstitutionally structured. In a letter to Senate Majority Leader Mitch McConnell and House Speaker Nancy Pelosi, Director Kraninger stated, “I am writing to advise you that the [CFPB] has determined that the for-cause removal provision of [Dodd-Frank] is unconstitutional.”
Director Kraninger also stated that the CFPB has urged the Supreme Court to review Seila Law v. CFPB, which is a legal case that centers on the constitutionality of the agency. Earlier this summer, Seila Law’s petition for a writ of certiorari received substantial support from several trade associations, a think-tank, and twelve Attorneys General.
According to Alan S. Kaplinsky, partner with Ballard Spahr LLP, “All of the briefs argue that the CFPB’s structure is unconstitutional under relevant Supreme Court precedent but do not take a position on what the appropriate remedy should be (i.e. striking all of Title X of Dodd-Frank or only severing the for-cause removal provision).”
Most recently, Noel J. Francisco, U.S. Solicitor General, filed an amicus brief also requesting the Supreme Court to rule on this issue, calling the Seila Law’s case “a suitable vehicle for the court’s review … [T]he separation-of-powers question presented here is important, has broad implications for the president’s ability to supervise the executive branch and creates uncertainty that undermines the bureau’s ability to fulfill its mission.”
Most cases that are petitioned to the Supreme Court are never heard, but the chances of this case are higher than most. “I can’t recall any federal agency ever arguing in court, let alone [at the Supreme Court], that its agency was unconstitutionally created,” said Kaplinsky. “That, in and of itself, would seem to warrant cert being granted.”