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Legal, Regulatory, and Privacy Issues

Supreme Court to hear case that threatens CFPB independence

The case, Seila Law v CFPB, is filed by a law firm that did not wish to cooperate with a CFPB investigation


The Supreme Court will weigh in on whether the CFPB’s structure, with an independent director, is unconstitutional.

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Can the president remove the director of the Consumer Financial Protection Bureau without cause?

A case, Seila Law LLC v Consumer Financial Protection Bureau, that is pending before the Supreme Court will weigh in on this matter.

The Dodd-Frank legislation that established the CFPB laid down that the president can only remove a CFPB director, whose term runs for five years, for cause, such as being inefficient or neglectful of duty. That set up is meant to preserve the independence of the CFPB, a consumer protection agency that was established following the 2008 financial crisis, so that it wouldn’t be subject to interference from the industry and politicians.

Harry Litman, a Washington Post columnist and former U.S. attorney, writes, “That independence has allowed the CFPB to act as a vigorous watchdog for consumers well into the tenure of President [Donald] Trump, with whom it has often warred. It also attracted the ire of conservatives, who have long hated the notion of independent regulatory agencies allowed to act free of direction by the president — what they describe as a ‘headless fourth branch’ of government.”

See related:  Under Trump appointee, CFPB is reversing consumer protection

Supreme Court will rule on whether CFPB’s structure is constitutional

The case before the Supreme Court is brought by Seila Law, a firm that provides various debt-related legal services. This firm refused to provide certain documents to aid a CFPB investigation, saying that the CFPB’s structure is unconstitutional.

A district court did not agree with Seila Law, and the firm’s appeal to the U.S. Court of Appeals for the Ninth Circuit also did not succeed.

CFPB Director Kathy Kraninger has herself urged the Supreme Court to hear this case, noting that the question of whether the “removal for cause only” provision relating to the CFPB director is constitutional has been used to challenge its legal actions.

In comments to Congress, she noted, “I believe this dynamic will not change until the constitutional question is resolved either by Congress or the Supreme Court.”

See related:  CFPB to continue public access to complaints database

Loss of CFPB independence would imperil its mission

Consumer advocacy groups have expressed their dismay at the possibility of the CFPB losing its independence.

Yvette Garcia Missri, litigation counsel at the Center for Responsible Lending, said, in a news release, “If the Supreme Court invalidates the CFPB director’s for-cause removal protection, it would imperil the agency’s ability to function as intended, and it would allow free reign for bad financial actors to influence the agency. We’ve already seen payday lenders successfully push their plan to delay and weaken the payday rule, and restitution for consumer victims wronged by industry has significantly declined under the agency’s current political leadership.”

The U.S. Public Interest Research Group has also weighed in. In a news release, Ed Mierzwinski, U.S. PIRG’s senior director for federal consumer programs, noted, “We are disappointed that CFPB director Kathy Kraninger threw her lot in with the Trump Administration and co-signed a brief from the solicitor general opposing the bureau’s constitutionality. How can she do her one job, protecting consumers, when she doesn’t agree with the independence of her agency from politics?”

Even though the CFPB will not be supporting its own constitutionality, there will be a supporter who will testify as a “friend of the court” defending the appeals court’s ruling. The Supreme Court has appointed Paul Clement, a former U.S. Solicitor General, to defend the CFPB’s independent set up.

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