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Supreme Court Strikes Down Consumer Financial Protection Bureau Leadership

Supreme Court Strikes Down Consumer Financial Protection Bureau Leadership

The president has broad authority to dismiss the head of the Consumer Financial Protection Bureau, the Supreme Court ruled Monday in a 5-4 decision along ideological lines. 

In the case of Selia Law v. Consumer Financial Protection Bureau, the justices were asked to determine whether the director of the CFPB can only be removed before the end of their term “for cause” ― meaning some form of documented misconduct ― or if the president should be able to fire the director “at will,” even for nakedly political reasons. 

In an opinion written by Chief Justice John Roberts, the five conservative justices held that those restrictions on the president’s authority to remove the head of an executive branch agency are unconstitutional. 

The political significance of the case has always been much greater than the technical question at its core. Ever since Congress created the CFPB in 2010, the financial industry has been trying to disarm and destroy the agency. Between its inception and President Donald Trump’s inauguration, the CFPB returned nearly $12 billion to defrauded consumers ― money that payday lenders, Wall Street banks and others would very much like to have kept for themselves. And so bank lawyers drafted various legal challenges to the CFPB, hoping to distract the agency with lengthy court battles and ultimately to make it impossible for the agency to function.

In the Selia Law case, a California law firm under investigation by the CFPB attacked the agency’s leadership structure. The agency is run by a single director whom the president appoints and the Senate confirms. Before the end of their five-year term, the director can be removed solely for cause ― specifically, for “inefficiency, neglect of duty or malfeasance in office.”

The financial industry and Republican critics of the agency have long argued that this is an unconstitutional encroachment upon the president’s executive authority, insisting that the president should be able to remove the CFPB director for whatever reason the president wants.

The agency’s supporters prefer the for-cause benchmark because it makes it more difficult for a Republican president to remove an effective regulator. The director’s five-year term means a leader selected by one president can serve into the administration of a president from another party. The Office of the Comptroller of the Currency and the Federal Housing Finance Administration ― two older financial regulatory agencies ― also have top appointees who can be removed only for cause.

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Consumer advocates have worried that the legal attacks on the CFPB would ultimately provide an excuse for conservative Supreme Court justices to dismantle the agency outright. And their fears were magnified when the court decided to accept the Selia Law case even though a similar case, PHH Corp. v. CFPB, was also available for review. 

As a judge on the U.S. Court of Appeals for the D.C. Circuit, Brett Kavanaugh had already ruled in the PHH Corp. case that the agency is “unconstitutionally structured” ― meaning that now-Justice Kavanaugh would almost certainly have recused himself from the high court’s decision. By selecting Selia Law instead, conservatives on the court bolstered their chances of delivering a similarly aggressive ruling.

Current CFPB Director Kathy Kranninger, a Trump appointee, is widely viewed as a defender of the financial industry. But if Joe Biden were to win in November, the lower legal threshold for dismissal would allow him to oust Kranninger in favor of a more consumer-friendly official.

This is a developing story. Please check back for updates.

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