Trump’s Latest Assault on the CFPB Could Backfire

After a messy takeover of the CFPB, the administration now wants the agency’s structure declared unconstitutional.

Consumer Financial Protection Bureau Director Kathy Kraninger as seen during congressional testimony in July 2018, when she was still working at the White House.
Consumer Financial Protection Bureau Director Kathy Kraninger Alex Wong/Getty Images

The Department of Justice has urged the Supreme Court to ensure that the next Democratic president can fire Donald Trump’s director of the Consumer Financial Protection Bureau on day one.

In a brief filed Tuesday, Solicitor General Noel Francisco told the court that the government believes the CFPB’s structure is unconstitutional. He encouraged the justices to fix the putative problem by severing a provision of the law that bars the president from removing the CFPB’s director without cause. The move is likely motivated in part by a fixation on sweeping executive power. It may also be influenced by Republicans’ long-standing crusade to strip the agency of its independence, a key factor in its ability to aggressively enforce regulations against bad actors like Wells Fargo and predatory debt collectors. But a ruling in the DOJ’s favor would not accomplish that goal. Instead, it would guarantee that Trump’s messy takeover of the CFPB will die once the next Democratic president takes office.

For years, companies investigated or penalized by the CFPB have attempted to attack the agency’s constitutionality in court. That is no surprise. Created in 2010 through the Dodd–Frank Act, the CFPB protects consumers from scams and predation in the financial sector—which, as the 2008 recession proved, are rampant. The financial sector does not particularly enjoy being regulated, and multiple subjects of the agency’s investigations have challenged its authority in court. This latest case involves Seila Law, a firm the CFPB suspects of violating federal consumer telemarketing laws in advertising debt-relief services. Seila Law does not want to comply with the agency’s interrogatories and requests for documents. So it has fought back by accusing the CFPB of being unconstitutional.

The trouble here arises from the CFPB’s composition: It is led by a single director, nominated by the president and confirmed by the Senate, who serves a five-year term. The director can only be removed by the president for “inefficiency, neglect of duty, or malfeasance in office.” This structure is unusual, as most independent agencies are led by multiple commissioners. But it is not unique: At least three other agencies are headed by a single person.

According to the CFPB’s critics, the agency’s design upsets the separation of powers. The Constitution states that the “executive Power shall be vested in a President of the United States of America,” a rule that limits Congress’ ability to shield federal agencies from presidential oversight. An agency like the CFPB is “independent” in the sense that the president can’t terminate its director because he doesn’t like how the place is being run. But when the CFPB takes enforcement actions, it is exercising executive authority. Critics argue that Congress can’t insulate an agency with executive authority from the man who holds the “executive Power” under the Constitution.

There is a problem with this argument: The Supreme Court has repeatedly held that Congress can, in fact, restrict the president’s authority to fire officials who exercise executive power, including agency commissioners. Indeed, more than 80 years ago, the Supreme Court upheld the independence of the Federal Trade Commission, a financial regulator similar to the CFPB whose commissioners cannot be fired without cause. The court has confirmed that Congress may grant substantial independence to agencies without unlawfully infringing upon the president’s right to control the executive branch.

So what’s different about the CFPB? Seila Law is the latest in a series of companies to assert that the agency’s one-director structure is unconstitutional. The company claims that because the Supreme Court has only approved multimember independent agencies, a single-director agency can’t fly. For support, Seila Law cites an opinion by then-Judge Brett Kavanaugh on the U.S. Court of Appeals for the District of Columbia Circuit. When the D.C. Circuit upheld the agency’s structure in 2018, Kavanaugh dissented. He wrote that in “a multi-member independent agency, no single commissioner or board member can affirmatively do much of anything,” because “a majority of commissioners must agree.” This feature “makes it harder for the agency to infringe your liberty,” or to issue decisions that are “extreme, idiosyncratic, or otherwise off the rails.” These distinctions, Kavanaugh claimed, are of a constitutional caliber. He would’ve granted the president an absolute right to sack the CFPB director for any or no reason.

Now that Kavanaugh is on the Supreme Court, Seila Law thinks it has a good shot at turning his 2018 dissent into the law of the land. It’s appealing a decision from the 9th U.S. Circuit Court of Appeals, and the smart money says SCOTUS will take the case. That’s especially true now that the DOJ has asked the court to hear the appeal—and to strike down the “for-cause” removal restriction. It used to be unusual for the DOJ to proclaim that a federal law is unconstitutional, but that’s becoming par for the course in the Trump administration. The solicitor general’s brief argues that Kavanaugh was right in 2018, and the president has the constitutional authority to fire the CFPB director willy-nilly. Remarkably, he added that current CFPB Director Kathy Kraninger agrees that she should not be insulated from termination.

What’s peculiar about this position is that it would, in the short and medium term, be a windfall for Democrats. Kraninger is wildly unqualified to lead the CFPB: Before her confirmation, she had no experience in consumer protection or financial regulation. Civil rights groups and Wall Street watchdogs uniformly opposed her, while the financial industry supported her—perceiving correctly that she would be, at best, a do-nothing director. She was confirmed by a 50–49 party-line vote and took office in December 2018. Under the current law, Kraninger will serve until December 2023. Thus, if a Democrat wins in 2020, the CFPB will be led by the dead hand of the Trump administration for nearly half of the next president’s first term.

The CFPB’s independence goes beyond its director. Its budget is not subject to the appropriations process but drawn from the Federal Reserve using a fixed formula (though Trump keeps trying to change that). Even though the agency sits within the Federal Reserve System, it has autonomy from the Federal Reserve Board of Governors. Still, the director exercises immense control over the CFPB. That’s why, before Trump appointed Kraninger, he designated his right-hand man Mick Mulvaney as acting director. Mulvaney then sought budget cuts, fired the entire advisory board, and halted countless enforcement actions and investigations—all to the delight of the financial industry. It matters who sits at the head of the agency.

Why did Francisco ask the court to chop off “for-cause” removal but leave everything else in place? Presumably he recognized that the more radical solution to the CFPB’s alleged defect—abolishing the entire agency—is lawless. The Supreme Court has already held that when a “for-cause” removal provision does infringe on the president’s power, the proper solution is to sever it from the rest of the law. That remedy would obviously apply here. When courts identify an unconstitutional section of a statute, they must decide if Congress would’ve wanted the law to function without the faulty provision. Congress only crafted the CFPB’s single-director structure toward the end of negotiations; in fact, the original bill passed by the House of Representatives structured the CFPB as a traditional multimember commission. Lawmakers settled on a single director after concluding that the agency should act decisively and become operational immediately. (The confirmation process for multiple members could’ve dragged on for years.) Congress clearly viewed these features as a perk, not an absolute necessity, and would have rather have seen the “for-cause” provision struck than seen the entire agency fall.

But there is another question here: Why is Francisco asking the court to take a thwack at the CFPB at all? Again, the DOJ traditionally defends federal laws, even those its current leaders might not like as a matter of policy. Only in very recent years has the DOJ started declining to defend federal statutes, most notably the Affordable Care Act. Francisco surely knows conservative activists and jurists have long sought to curtail or abolish agencies’ independence. This project is part of the push for a “unitary executive”—that is, a president who has absolute control over the entire executive branch. For instance, the DOJ took an aggressive position against the independence of administrative law judges who adjudicate proceedings at the Securities and Exchange Commission. After the Supreme Court partly agreed with the DOJ, Trump seized upon the ruling to convert these judges into political appointees. By attacking the CFPB director’s independence, Francisco is tossing more red meat to advocates of the “unitary executive.”

The current Supreme Court appears hostile to agency independence, particularly with Kavanaugh on the bench. It seems quite likely that the conservative majority is ready to agree with Francisco and grant the president power to remove the CFPB director at will. The result would be a small victory for conservative jurisprudence. It would also force Trump to hand over the keys to the CFPB to the next Democratic president.