Supreme Court agrees to take CFPB constitutionality case

Dive Brief:

The Supreme Court agreed Friday to take up a case to determine the constitutionality of the Consumer Financial Protection Bureau’s structure.
At issue is a provision in the Dodd-Frank Act that allows the president to only fire the director of the bureau "for cause."
Justice Brett Kavanaugh was on the U.S. Court of Appeals for the D.C. Circuit's three-judge panel that ruled the CFPB's single-director structure unconstitutional.

Dive Insight:

In Seila Law v. CFPB, a California debt collection law firm argued it should not have to comply with a CFPB civil investigative demand because the bureau’s leadership structure is unconstitutional. The U.S. Court of Appeals for the Ninth Circuit rejected the law firm’s claims against the CFPB in May.

Kavanaugh, in an earlier lower-court ruling, wrote that, rather than declaring the agency null and void, the "for cause" language in Dodd-Frank should be struck. That would allow the president to fire the CFPB director at will. But such a ruling from the high court would affect other federal agencies, such as the Federal Housing Finance Agency, that have a similar single-director structure.

The debate over the agency's structure has intensified recently. The Justice Department filed a brief last month urging the Supreme Court to take the case. But the most surprising turnabout may have come from CFPB Director Kathy Kraninger herself. During her nomination process last year, Kraninger said "the ultimate question of the constitutionality of the Bureau's structure is one for Congress or the courts to resolve." But Solicitor General Noel Francisco, in his September brief, wrote that "the Director has reconsidered that position."

"Litigation over [the CFPB's constitutionality] has caused significant delays to some of our enforcement and regulatory actions," Kraninger clarified in an email to staff. "I believe this dynamic will not change until the constitutional question is resolved either by Congress or the Supreme Court."

During a semiannual briefing on Capitol Hill on Thursday, that reversal led Sen. Sherrod Brown, D-OH, to "question [Kraninger's] credibility."

But Kraninger stood her ground when addressing a House committee the previous day. "I believe fundamentally the Supreme Court and Congress need to decide and settle once and for all so that the bureau can move forward and actually engage in its mission proactively," she said.

Leaders of two banking associations, in statements emailed to Banking Dive on Friday, welcomed the "legal clarity" a Supreme Court ruling might provide.

"Regardless of the outcome, we continue to believe that the Bureau should be more accountable to Congress and that a five-member, bipartisan commission — as originally envisioned in drafts of the Dodd-Frank Act — would balance the Bureau’s needs for independence and accountability, while broadening perspectives on rulemaking and enforcement," wrote Rob Nichols, the president of the American Bankers Association.

The Credit Union National Association "has consistently advocated for legislation that provides for a multi-person, bipartisan commission to lead the Bureau, as was originally proposed by the Obama administration in 2009," wrote Ryan Donovan, the organization’s chief advocacy officer.

"A commission is better for consumers because it would enhance the independence of the Bureau, bring diverse perspectives to the policymaking table, ensure greater stability, and be more consistent with our country's democratic principles," Donovan said.

Enforcement activity at the bureau is on the upswing. The agency announced 22 cases during fiscal 2019, which ended Sept. 30, according to The Wall Street Journal. That's nearly double the 12 cases the bureau announced the previous year, but a little more than half the number of cases it handled in each year from 2015 to 2017. Consumers harmed in last fiscal year's 22 cases got back $777 million, a four-year high, according to the Journal.