Case No. 19-7 | 9th Cir.
Preview by Sean Lowry, Online Editor*
The main issue in Seila is whether the President’s ability to remove the single Director of the Consumer Financial Protection Bureau (“CFPB”), an agency with substantial executive authority, only for cause violates the Constitution’s separation of powers.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, created an “independent” CFPB housed within the Federal Reserve System and headed by a single Director. The Director of the CFPB is appointed by the President and confirmed by the Senate. 12 U.S.C. § 5491(a), (b)(1)–(2) (2018). The Director may generally remain in office for a term for five years and can only be removed by the President for cause, specifically for: “inefficiency, neglect of duty, or malfeasance in office.” See 12 U.S.C. § 5491(c)(1)–(3). The CFPB has powers to prohibit unfair, deceptive, or abusive practices in certain consumer finance industries, and it has enforcement powers to conduct investigations, issue subpoenas, and file lawsuits in federal court to impose civil penalties or obtain other equitable relief. Unlike many federal agencies, the CFPB is not subject to Congress’s annual appropriations process; instead, the Director requests funding from the Federal Reserve System to cover its reasonable expenses. See 12 U.S.C. § 5497.
This case arose after the CFPB issued a 2017 civil investigative demand to Seila Law, which offers legal services to individuals with consumer debt. The CFPB alleged Seila Law violated federal consumer financial law, and eventually filed a petition in federal district court to obtain Seila Law’s full compliance with the investigation. Seila Law challenged the constitutional validity of the CFPB. The district court rejected this argument.
While the case was pending for appeals before the Ninth Circuit, a divided D.C. Circuit issued its en banc decision in PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018). There, the D.C. Circuit upheld the constitutional validity of the CFPB, citing a number of Supreme Court precedents set in cases such as Humphrey’s Executor v. United States, 295 U.S. 602 (1935) (upholding for-cause removal of members from the Federal Trade Commission based on “inefficiency, neglect of duty, or malfeasance in office”) and Morrison v. Olson, 487 U.S. 654 (1988) (upholding a for-cause-only removal restriction for independent counsel). Then–Judge Kavanaugh dissented from the majority in PHH, arguing that: the single head of CFPB can be distinguished from the multi-member independent agency in Humphrey’s Executor, and the officer in Morrison was an “inferior officer” in contrast to the head of the CFPB. See PHH Corp., 881 F.3d at 164 (Kavanaugh, J., dissenting). The Ninth Circuit later affirmed the district court’s opinion in Seila on similar reasoning. See CFPB v. Seila Law LCC, 923 F.3d 680 (9th Cir. 2019).
Counsel for Petitioner, Seila Law, makes two general arguments why the structure of the CFPB upsets the Constitution’s balance of separations of powers: (1) the CFPB concentrates broad, executive power in a single person that cannot be removed by the President other than for cause, and (2) the CFPB is largely exempt from the congressional appropriations process. Such a structure, petitioner argues, “could provide a blueprint for Congress to reshape the Executive Branch in dramatic fashion.” Petition for a Writ of Certiorari at 15, Seila Law LLC v. CFPB, No. 19-7 (U.S. filed June 28, 2019).
The Office of the Solicitor General, which typically defends federal agencies before the Court, filed a brief agreeing with Petitioner and has chosen not to defend the CFPB. (This has caused some commentators and amici to question whether the Court should dismiss the case as there is no longer a live “case or controversy” under Article III.) As a result, the Court appointed Paul Clement, former Solicitor General under President George W. Bush, as amicus curiae to defend the CFPB in oral arguments. The amicus brief makes three arguments in favor of upholding the CFPB: (1) the Petitioner lacks standing because the alleged “injury” (compliance with the investigation) is not traceable to the President’s authority to remove the Director, (2) the powers of the CFPB and the removal clause of its Director are similar to those found in other agencies, and (3) there is no constitutional basis for distinguishing the Director’s removal clause from the line of Court case precedent. Brief for Court-Appointed Amicus in Support of Judgment Below at 21, 33, Selia Law LLC v. CFPB, No. 19-7 (U.S. filed Jan. 15, 2020).
*Sean Lowry is a 3LE (Class of 2021) and Analyst in Public Finance at the Congressional Research Service (CRS). The views expressed are those of the author and are not necessarily those of the Library of Congress or CRS.