On June 29, 2020, the Supreme Court issued its opinion in Seila Law LLC v. Consumer Financial Protection Bureau, slip op. No. 19-7. The decision resolves a long-disputed issue regarding the constitutionality of the structure of the Consumer Financial Protection Bureau (CFPB or the Bureau)-namely, whether the Dodd-Frank Act's statutory restriction on removal of the CFPB Director is consistent with the President's powers in Article II of the Constitution. In a 5-4 decision, the Supreme Court held the restriction unconstitutional and invalidated it. At the same time, the Court rejected the argument that the entire CFPB should be invalidated due to the constitutional defect, and it left other remedial issues, such as the effect of the decision on pending Bureau matters, for lower courts to decide.
We think the Seila decision has several practical implications for institutions.
First, the decision makes clear that the CFPB is here to stay. It was always unlikely that the Supreme Court would nullify the CFPB, but Seila puts the issue to rest. However, Seila will give impetus to efforts by the President to exert political control over the CFPB. In particular, we could see efforts to treat the CFPB Director similarly to heads of other executive branch agencies-for example, the CFPB Director may be expected to tender her resignation upon a change in presidential administration, or CFPB rules could be subjected to review by the Office of Information and Regulatory Affairs.
Second, litigation will continue to play out in lower courts regarding the effect of Seila on ongoing Bureau investigations and litigation. However, Director Kraninger is likely to ratify most prior Bureau actions, and any relief to regulated entities could be limited.
Third, the reasoning of Seila opens the door to constitutional litigation challenging the structure of other government agencies, most notably the Federal Trade Commission (FTC) and the Federal Housing Finance Authority (FHFA).
Background
The case arose from a civil investigative demand (CID) issued to Seila Law LLC, a California law firm that provides advice on debt-related issues, regarding possible unlawful advertising, marketing or sale of debt relief services. Seila Law refused to comply with the CID on the ground that the CFPB was led by a single director removable only for "inefficiency, neglect of duty, or malfeasance in office." 12 U.S.C. §§5491(c)(1), (3). The CFPB filed a petition to enforce the CID in district court, and again raised its constitutional objection. The district court sided with the CFPB and ordered Seila Law to comply with the CID. The court of appeals affirmed, citing PHH Corp. v. CFPB, 881 F.3d 75 (2018), which had rejected a similar challenge to the constitutionality of the CFPB's structure.
In addition to the question of constitutionality of the removal clause, the Supreme Court directed the parties to brief and argue whether the contested clause can be severed from the rest of the Dodd-Frank Act. The Department of Justice sided with Seila Law on the issue of the President's authority to terminate the CFPB Director, and argued for the petitioner. The Court invited...
