Supreme Court Rules CFPB Structure Unconstitutional

The Supreme Court ruled Monday that the structure of the Consumer Financial Protection Bureau is unconstitutional – but left in place the rest of the legislation creating the consumer protection agency.

Writing for the majority in the 5-4 decision, Chief Justice John Roberts said the law violate the separation of powers clause because it prevented the president from firing the agency director at will. The law said the director could only be fired “for cause.”

“We therefore hold that the structure of the CFPB violates the separation of powers,” the Supreme Court ruled. “We go on to hold that the 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 it’s Director, in light of our decision, must be removable by the President at will.”

The case stemmed from a 2017 case in which the CFPB issued a civil investigative demand – basically a subpoena – to California-based Seila Law LLC, a law firm that provides debt-related legal services. Seila Law asked the CFPB to set aside the demand on the ground that the agency’s leadership by a single director removable only for cause violated the separation of powers. The CFPB refused.

Seila Law refused to comply with the demand, and the CFPB filed a petition to enforce the demand at the district court level. The District Court ordered Seila Law to comply with the demand, a decision that was affirmed by the Ninth Circuit Court of Appeals.

The Supreme Court vacated the judgment Monday and remanded it back to the lower court.

“Under our Constitution, the executive Power – all of it – is vested in the President,” Roberts wrote.

The Mortgage Bankers Association called the decision “appropriate.”

“MBA believes that severing the provision related to the independence of the CFPB’s Director was the appropriate remedy if the Court found the Bureau’s structure to be unconstitutional,” MBA President and CEO Bob Broeksmit said. “While we may not agree with every action the Bureau has taken in the past, today’s ruling will ensure the Bureau’s rules that our members and the nation’s consumers have come to rely on remain in place.” 

The National Association of Realtors said, “Today’s announcement is in line with NAR’s advocacy and should result in minimal disruption to the role of the CFPB and its past and future actions.”

Here is how legal experts and others reacted to the decision: