The movement to challenge the constitutionality of the Consumer Financial Protection Bureau (“CFPB”) was given life through the PHH Mortgage case, and then seemingly was left without a pulse after the PHH Mortgage en banc hearing. But in Seila Law, LLC v. CFPB, No. 19-7 (U.S.), the argument that the CFPB’s structure is unconstitutional was resurrected, and it has survived all the way to the Supreme Court of the United States. Today, the High Court heard oral argument from the parties.
It is not often that creditors and debt-relief agencies share the same legal argument in similar cases. However, the argument asserted by Seila Law(a consumer debt relief firm)in the case currently before the Supreme Court, PHH Mortgage, a mortgage servicer, are one and the same. Both entities were originally the subject of CFPB enforcement actions. And both argued in defense that the CFPB’s structure violates the Separation of Powers Clause of the United States Constitution, due to its single-director, terminable-only-for-cause structure. More information about the original PHH Mortgage holding, which was reversed by the D.C. Circuit court en banc,is discussed in our previous post.
A second prong has been added to the unconstitutionality argument in Seila: The Supreme Court must first decide whether the structure of the CFPB is constitutional. If the Court finds it is not, then the Court must decide whether the relevant portions of the Dodd-Frank Act, creating its current structure, may be severed from the rest of the Dodd-Frank Act. In other words, is it necessary to abolish the CFPB altogether in the event its structure is unconstitutional, or may the agency itself be preserved with a more balanced model?
Interestingly, one Supreme Court Justice has already rendered an opinion on the first argument. It so happens that Justice Brett Kavanaugh was sitting on the D.C. Circuit at the time of the original PHH holding, as well as when the en bancCourt overturned the original PHH decision. In his dissent to the latter, Justice Kavanaugh stated that the CFPB’s unchecked powers violate the constitution, where the director’s power is “massive in scope, concentrated in a single person, and unaccountable to the President.” Justice Kavanaugh did not recuse himself from the current proceedings, despite critics’ insistence that he do so due to his history with the PHH case.
Kavanaugh’s comments during argument today have reportedly echoed his prior opinions. Chief Justice John Roberts is considered the potential swing vote in this case, and his questions during today’s argument were directed toward both sides.
It is highly unlikely that the Supreme Court will hold that the CFPB should be dismantled altogether. The Trump administration has even softened its position on this issue since President Trump was first campaigning. But for the first time since its creation, there is a real possibility that the structure of the agency will be put into check.