The Supreme Court ruled yesterday that the Consumer Financial Protection Bureau (CFPB) can carry on, despite its unconstitutional leadership structure. The ruling gives the President the freedom to replace a CFPB Director at will. In a 5-4 decision, the Court held that the CFPB’s leadership by a single director removable only for cause was an unconstitutional restraint on the president’s executive powers. Writing for the majority, Chief Justice John Roberts, explained that the limitation on the President’s authority to remove the CFPB Director is out of step with historical and legal precedent and “is incompatible with our constitutional structure.”

Speaking to historical precedent, the Court noted that other instances where Congress has “provided good-cause tenure to principal officers who wield power alone rather than as members of a board of commission” shed little light, describing most of the examples as “modern and contested.” As to prior case law addressing limitations on the President’s removal powers, the Court stressed that two of the most prominent of those cases, Humphrey’s Executor v. United States and Morrison v. Olson, are factually inapposite because neither of those cases dealt with an official or agency who wielded “regulatory or enforcement authority remotely comparable to that exercised by the CFPB.” Indeed, instead of extending the rationale of those decisions, the Court limited its prior decisions to their facts, thereby clarifying the boundaries of Presidential removal authority and potentially raising questions about the power of removal as to other agencies.

The Court explained that, unlike the President, who wields immense authority but is subject to regular, national elections, the CFPB’s single-Director structure contravenes the Constitution’s “carefully calibrated system by vesting significant governmental power in the hands of a single individual accountable to one.” Because authority of executive officials must remain subject to supervision and control of a President and, accordingly, the electorate, the Court held the Director’s insulation from removal to be unconstitutional.

Despite the Court’s ruling on the CFPB’s leadership structure, the CFPB remains intact. The Court decided on a 7-2 vote, with only Justices Thomas and Gorsuch dissenting, that the section of the Dodd-Frank Act providing for the “for cause” removal may be severed from the rest of the Act. The immediate effect of this decision is that the CFPB may carry on business as usual, with the difference now being that President Trump, and future Presidents, may fire the CFPB Director without cause. Essentially, the CFPB Director now serves at the will of the President.

From its inception, the CFPB has been the subject of rigorous debate. While it was led by former Director Richard Cordray, supporters heralded the agency’s aggressive enforcement actions and policy making, while opponents argued that the agency was upending constitutional and statutory restraints on its authority. Indeed, in late 2018, Troutman Sanders obtained a significant appellate victory again the CFPB, with the United States Court of Appeals for the Fifth Circuit noting that the agency had behaved as if it had “unfettered authority to cast about for potential wrongdoing” and holding that it “must comply with statutory requirements” governing its investigatory powers. (See Client Alert.)

But the Supreme Court’s decision may end the debate on the constitutionality of the CFPB, as its enforcement activities and policy making will now be subject to political oversight, and potentially to bipartisan political oversight. Anticipating that Congress would be more open to reworking the CFPB’s leadership structure following a decision of this nature, Senator Deb Fischer of Nebraska introduced a bill last week that would replace the CFPB’s single director with a five-member commission. The Supreme Court’s ruling could spur Congress to replace the single director model with a more traditional Commission structure akin to other agencies such as the Federal Trade Commission and the Securities and Exchange Commission.