Consumer Financial Protection Bureau Survives Attack on Constitutionality…For Now?

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The Consumer Financial Protection Bureau (CFPB), established with the purpose of “ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive,”has been in the news quite a bit of late.  The Trump administration is considering an overhaul of the rules limiting bank overdraft fees, the head of enforcement at the CFPB, Eric Blankenstein, resigned amid scandal, and the United States House of Representatives passed a bill to reverse certain actions undertaken by the current administration to loosen bank oversight, to name just a few matters in the press.  Amid all that activity, the CFPB quietly defeated a challenge to its constitutionality in the courts…for now.

The CFPB was investigating alleged violations of the law by Selia Law LLC in marketing its debt-relief services.  The CFPB issued a civil investigative demand (CID) to Seila Law. When Seila Law refused to comply with the CID, the CFPB filed an action in federal district court to enforce compliance.  The district court granted the petition and ordered Seila Law to comply with the CID. Seila Law appealed.

The United States Court of Appeals for the Ninth Circuit upheld the district court’s ruling, finding that the CFPB was not unconstitutionally structured.  Most principal officers of Executive agencies serve at the pleasure of the President as at-will employees.  The CFPB Director, however, can be removed by the President only for cause.  Seila Law argued that the for-cause provision rendered the CFPB unconstitutional, and, therefore, every action taken by the CFPB, including issuing the CID, was unconstitutional.    

The Ninth Circuit rejected Seila Law’s argument, finding the CFPB as structured did not violate the Constitution, relying on United States Supreme Court precedent.  In so doing, the Ninth Circuit noted that “[t]he Supreme Court is of course free to revisit those precedents.”  Why is that interesting?  For that answer, we turn to a 2018 decision by the United States Court of Appeals for the District of Columbia Circuit and what it might mean for the Supreme Court.

In PHH Corporation v. Consumer Financial Protection Bureau, the D.C. Circuit Court of Appeals considered the same question of the constitutionality of the CFPB’s for-cause provision.  A three-judge panel initially found the for-cause provision unconstitutional.  After a rehearing en banc, that is, with all the judges of the D.C. Circuit hearing the case, the en banc D.C. Circuit Court upheld the CFPB’s constitutionality.  Nine judges in total participated in the matter, and seven separate opinions were issued: the majority opinion, three concurring opinions, and three dissenting opinions, demonstrating that the Court was divided as to both reasoning and outcome.  Of import to Seila Law, however, was the authorship of one of the dissenting opinions.

Seila Law may file a petition for a writ of certiorari, asking the United States Supreme Court to overturn the finding that the CFPB is constitutional. The Supreme Court, however, is not required to hear the case, and when there is no disagreement among the Circuit Courts of Appeals, as is the case here (though it bears noting that the Second and Fifth Circuit Courts of Appeals have this issue before them now), the Supreme Court very often opts not to hear such appeals.  However, we know that at least one Supreme Court Justice, Justice Kavanaugh, firmly believes the Ninth Circuit is wrong on the law.  We know that because Justice Kavanaugh authored one of the dissenting opinions in PHH Corporation when he was still a Circuit Court judge.     

In his lengthy (nearly 40-page) dissent in PHH Corporation, tracking closely to the majority opinion in the three-judge panel decision that he also authored, now-Justice Kavanaugh took the position that “independent agencies pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.”  Justice Kavanaugh expressed concern that, in his view, “other than the President, the [CFPB] Director enjoys more unilateral authority than any other official in any of the three branches of government.”  According to Justice Kavanaugh, this combination of “power that is massive in scope, concentrated in a single person, and unaccountable to the President,” renders the CFPB unconstitutional.  

It takes four justices to grant a writ of certiorari, i.e., to allow a party to appeal to the Supreme Court.  If Justice Kavanaugh can convince three fellow justices to hear the case, Selia Law will get a chance to make its constitutional arguments at the Supreme Court.  We know how Justice Kavanaugh would rule in such a case.  It remains to be seen if at least four other justices would agree with him. 


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