The U.S. Supreme Court Rules CFPB Leadership Structure Unconstitutional

On June 29, the Supreme Court issued a decision in Seila Law v. CFPB addressing the constitutionality of the Consumer Financial Protection Bureau. While the Court did not grant the petitioner’s request to invalidate the CFPB as a whole, a five-justice majority of the Court ruled that the CFPB’s Director “must be removable by the President at will.”

The CFPB was created under the Dodd-Frank Act in response to the 2008 financial crisis. The Agency is headed by a single director, appointed by the President and confirmed by the Senate, who serves a five-year term and who could be fired by the president only “for cause,” meaning “inefficiency, neglect of duty or malfeasance.” The structure is intended to provide regulators with independence from political influence. The Trump administration argued that the restrictions improperly limit the power of the President.

The Supreme Court decided that the for cause removal protection violates the Constitutional principle that “the executive power shall be vested in a President of the United States.” The ruling potentially implicates similar removal provisions applicable to other federal agencies, such as the Federal Reserve. However, the Court’s decision limited its holding to “the novel context of an independent agency led by a single director.”

Holding the for cause removal provision of the statute severable from the Dodd Frank Act, the Court otherwise left the CFPB intact.

* Shuqing Li contributed to this post.