Supreme Court Rules Independent CFPB Director Unconstitutional

A divided Supreme Court on Monday ruled the current structure of the Consumer Financial Protection Bureau, with power resting with a single, independent director, is unconstitutional, but stopped short of allowing the Trump Administration to dismantle the agency.

In the 5-4 decision (, the Court ruled that legal provisions restricting the President’s ability to fire the CFPB director is unconstitutional. The court’s more conservative members—Chief Justice John Roberts and Justices Clarence Thomas, Samuel Alito, Neil Gorsuch and Brett Kavanaugh—voted in favor; Justices Ruth Bader Ginsburg, Sonia Sotomayor, Elena Kagan and Stephen Breyer dissented.

The case, Seila Law v. CFPB, focused as to whether Congress violated the separation of powers when it put a single director in charge of enforcing consumer protection laws. The CFPB previously announced it would no longer defend its structure after years of lawsuits and calls to reform from stakeholders.

“The CFPB’s leadership by a single individual removable only for inefficiency, neglect, or malfeasance violates the separation of powers,” Roberts wrote in the majority opinion. However, he disagreed with the Administration’s request to dismantle the Bureau, writing while structure of the CFPB violates the separation of powers, the agency may continue to operate.

“The CFPB Director’s removal protection is severable from the other statutory provisions bearing on the CFPB’s authority,” Roberts wrote. “The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will.”

Kagan, in her dissent, said the Bureau should enjoy a degree of independence. “[Courts] should stay (mostly) out of the way,” she wrote. “Insulation from political pressure helps ensure impartial adjudications…It promotes continuity, and prevents short-term electoral interests from distorting policy. (Consider, for example, how the Federal Reserve’s independence stops a President trying to win a second term from manipulating interest rates.)”

That was the intent of then-Harvard professor and now U.S. Sen. Elizabeth Warren, D-Mass., who led efforts to create the agency in the wake of the Dodd-Frank Act. Following the Court ruling yesterday, she tweeted, “Let’s not lose sight of the bigger picture: after years of industry attacks and GOP opposition, a conservative Supreme Court recognized what we all knew: the CFPB itself and the law that created it is constitutional. The CFPB is here to stay.”

The ruling gave the Trump Administration part of what it wanted. President Trump inherited the CFPB’s former director, Richard Cordray, who was appointed by President Obama to serve a five-year term. Trump vocally expressed his displeasure with the direction Cordray took the Bureau, calling him a “poster boy” of regulatory excess, but was unable to remove him. Cordray left voluntarily at the end of 2017 to mount an unsuccessful campaign for governor of Ohio.

Since then, the Bureau has been run by former White House Chief of Staff Mick Mulvaney and the current director, Kathleen Kraninger, both of whom have relaxed a number of enforcement standards. Meanwhile efforts on Capitol Hill have sought to replace the CFPB’s single-director structure with a five-person commission—a solution favored by the Mortgage Bankers Association and other industry trade groups.

MBA President and CEO Bob Broeksmit, CMB, issued a statement following the ruling:

“MBA believes that severing the provision related to the independence of the CFPB’s Director was the appropriate remedy if the Court found the Bureau’s structure to be unconstitutional. While we may not agree with every action the Bureau has taken in the past, today’s ruling will ensure the Bureau’s rules that our members and the nation’s consumers have come to rely on remain in place. We look forward to continuing conversations on the best structure for the CFPB as it fulfills its important statutory mandates to create strong consumer protections and promote financial opportunity.”

What’s next for the Bureau remains uncertain. With the Court ruling, the single director structure of the Bureau means that, should presumptive Democratic presidential candidate Joe Biden win the election in November, he could replace the current director (Kraninger) on an at-will basis.

Additionally, last week Sen. Deb Fischer, R-Neb., reintroduced legislation ( that would change the structure of the Consumer Financial Protection Bureau from a single director to a bipartisan commission of five individuals. The bill has MBA support. MBA has long-called for changes to the CFPB’s leadership structure, saying a five-person commission, such as that in place at the Securities and Exchange Commission and other federal agencies, would provide more effective, balanced governance.