Supreme Court's CFPB case potentially impacts anyone with credit card debt or a mortgage

Sometimes a Congressional statute needs an executive agency, with some independence from the president, to truly protect the American people.
Image: Supporters of the Consumer Financial Protection Bureau outside the agency
Supporters of the Consumer Financial Protection Bureau outside the agency in Washington on Nov. 27, 2017.Alex Wong / Getty Images file
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By Jessica Levinson, professor at Loyola Law School

The Consumer Financial Protection Bureau was born out of the 2008 recession and the belief that our government was not adequately protecting us (consumers) from companies engaging in unfair, misleading and illegal behavior. Congress created this federal agency in 2010 as part of a sweeping set of financial reforms in the Dodd-Frank Act, which places a bunch of restrictions on private financial institutions. The act was one of the most important achievements of President Barack Obama’s administration and presidential hopeful Sen. Elizabeth Warren, D-Mass., was instrumental in its creation.

If you use a credit card, have a loan or a mortgage, or own securities, the work of the CFPB affects you.

Supporters of the CFPB argue that it provides a vital check on Wall Street financial institutions. Critics contend that the CFPB is the embodiment of overly burdensome government regulation.

Supporters of the CFPB argue that it provides a vital check on Wall Street financial institutions. Critics contend that the CFPB is the embodiment of overly burdensome government regulation that harms economic development.

Now the fate of the CFPB is with the Supreme Court. The case could lead to the wholesale elimination of the CFPB, which in turn could cause instability in our financial markets by potentially unwinding all of its past decisions and providing less protections for consumers. The case could also help redefine the reach of executive authority and show Congress just how far it can go in terms of creating federal agencies independent of the president of the United States.

Over the last several decades there has been a push to enlarge executive authority, a push that has arguably decreased the power of the legislative branch. If the court says Congress took away too much of the president’s power when it created the CFPB, it could cut the wings off future congressional efforts to protect Americans from unlawful and abusive behavior by private companies.

Congress created the CFPB as an independent federal agency with broad authority; it can, among other things, conduct investigations, write rules, and file civil actions in federal court to enforce consumer financial laws. The CFPB has a single director who is appointed by the president and confirmed by the Senate. The president does not have the power to remove the director at will. Instead, the president can only remove the director for cause, which in this case means “inefficiency, neglect of duty, or malfeasance in office.”

Congress designed the CFPB to be an independent agency, separate from the president’s control, because it takes some actions that are “quasi-legislative,” others that are “quasi-judicial,” and also acts as a financial regulator. Congress and the courts understand that an agency with these functions must have some independence from the president’s influence.

The main question in this case is whether the structure of the CFPB violates the constitutional principle of the separation of powers. Judges are not allowed to make laws. Lawmakers are not permitted to rule on legal cases. Presidents lack the power to appropriate federal funds, etc.

The group challenging the constitutionality of the CFPB (which is a law firm being investigated by the agency), argues that its structure violates the separation of powers because under the Constitution, the president has executive power and the duty to ensure that “laws are faithfully executed." Specifically, those challenging the law contend that when Congress created the CFPB, it had to allow the president to fire the director at will, instead of just for cause.

The U.S. Court of Appeals for the Ninth Circuit rejected that challenge to the CFPB and concluded that the agency is constitutional. It found that even though the director has broad authority and cannot be removed at-will, that structure does not “impede the president’s ability to perform his constitutional duty to ensure that the laws are faithfully executed.”

The second issue raised by the case is what would happen to the CFPB if the justices do declare its structure to be unconstitutional. One option is for the court to merely strike down the “for cause” provision, so that the CFPB remains and the president could more easily remove the director. This would reduce the independence of the CFPB, but it would survive as an agency. Another route for the Supreme Court is to invalidate the CFPB in its entirety. This would, of course, be the most drastic remedy.

We already almost certainly know how one of the Supreme Court justices will rule on this case. In 2018, then-Judge Brett Kavanaugh dissented in a similar case that challenged the constitutionality of the CFPB. The majority of his colleagues on the U.S. Court of Appeals for the District of Columbia Circuit voted to uphold the CFPB. Kavanaugh cast a vote for its demise.

If Kavanaugh maintains his position and finds four colleagues to join him, it is hard to see how any of the decisions the agency has made over almost a decade could stand. For instance, the CFPB has helped to reduce high late-fees on credit cards, undisclosed credit card fees and sharp interest rate hikes. It has also increased transparency related to credit card costs. The rules the CFPB has implemented to protect consumers would be erased.

The Supreme Court would certainly send a strong message to Congress by abolishing the CFPB, but this would be a mistake. Congress must have the power to create powerful executive agencies, largely free of presidential influence. Executive agencies like the CPFB serve important purposes like protecting consumers from predatory behavior of private businesses. Sometimes a congressional statute needs an executive agency, with some independence from the president, to truly protect the American people.