WASHINGTON (Legal Newsline) – Confirming years of complaints, the U.S. Supreme Court on Monday decided the structure of a federal consumer protection agency created during the Obama Administration is unconstitutional.
The court ruled 5-4 that the President must be able to remove the head of the Consumer Financial Protection Bureau, an agency created in the wake of the 2008 financial crisis. The issue came up in 2017 when President Trump took office and Obama’s CFPB director was still in place.
That director, Richard Cordray, resigned before it was determined whether Trump could replace him.
“The CFPB director has no boss, peers or voters to report to,” Chief Justice John Roberts wrote. “Yet the director wields vast rulemaking, enforcement and adjudicatory authority over a significant portion of the U.S. economy.
“Such an agency lacks a foundation in historical practice and clashes with constitutional structure by concentrating power in a unilateral actor insulated from Presidential control.”
The high court declined to declare the entire CFPB unconstitutional, as it found the removal protection issue is severable from the rest of the agency.
Dozens of amicus briefs were filed in the case. One of those was from the Washington Legal Foundation, which urged the court to rule in the manner in which it eventually did.
“The decision is a welcome defense of what’s left of the separation of powers,” said Corbin Barthold, WLF’s senior litigation counsel.
The prevailing party, Seila Law, responded to the CFPB’s civil investigative demand by challenging its structure. The CFPB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act and was tasked with regulating companies that offered financial services.
The agency flexed its muscle under Cordray during the Obama years. When Trump took office, his DOJ took a stance against the CFPB, arguing the President should be able to remove the director at-will.
He also signed legislation passed by Republicans that voided a controversial rule approved by the CFPB that would have prevented financial services companies from including class action waivers in their contracts.
Monday’s decision settles other challenges in lower courts that make the same argument. Meanwhile, a New Jersey debt-collection lawyer is continuing to pursue claims that the CFPB is unconstitutional because of how it is funded.