On March 3, 2020, the U.S. Supreme Court heard oral arguments in Seila Law LLC v. Consumer Financial Protection Bureau, a case centered on the constitutionality of the Bureau’s leadership structure. A transcript of the argument is available here, and an audio recording is available here.

The Background

The underlying dispute in the case arose out of the CFPB’s investigation of Seila Law, a law firm offering debt-relief services. After the CFPB filed suit to enforce a Civil Investigative Demand, Seila Law argued that the Bureau lacked the necessary authority to enforce a CID because the “for cause” removal provision in the Dodd-Frank Act insulating its director from presidential removal violates Article II of the U.S. Constitution. Although the Bureau prevailed on this issue in the trial and appellate court proceedings below, Director Kathleen L. Kraninger announced her view this summer that the removal provision is unconstitutional. Soon after, the Supreme Court granted certiorari in the case to decide whether the provision is constitutional and, if not, whether it can be severed from the remainder of Title X of the Dodd-Frank Act, which created the Bureau and provided it with its regulatory, supervisory, and enforcement authorities. After the Trump Administration declined to argue in support of the constitutionality of the Bureau’s leadership structure, the Court appointed counsel as an amicus to defend the Bureau’s constitutionality. The Court also invited the U.S. House of Representatives, which had filed an amicus brief, to have its counsel argue in favor of the structure’s constitutionality.

The Argument

Most of the argument centered on the constitutionality of the removal provision. The U.S. Solicitor General and counsel to Seila Law each urged the Court to find the removal provision unconstitutional. They argued that the independence of the Bureau’s single director improperly limits executive power and is historically anomalous. They noted the Bureau director’s significant enforcement authority, and argued that the ability to unilaterally exercise such authority while insulated from presidential removal presents fatal separation of powers concerns.

The court-appointed counsel defending the Bureau’s structure addressed these arguments by pointing to the Supreme Court’s precedent upholding removal restrictions in Humphrey’s Executor v. United States, 295 U.S. 602 (1935), and Morrison v. Olson, 487 U.S. 654 (1988). He highlighted the value of independent agencies being shielded from direct presidential influence, and argued that a decision striking down the removal provision could strip these agencies of protections that Congress deemed necessary for them to properly function.

Seila Law’s argument that the entirety of Title X must be invalidated because the for-cause removal provision is not severable did not appear to find broad support from the Court. Justice Kavanaugh’s questioning pointed to the severability clause in the Dodd-Frank Act as an indication of Congress’ intention to preserve all constitutional provisions of the law. During his service on the U.S. Court of Appeals for the D.C. Circuit, then-Judge Kavanaugh authored a 2016 opinion finding the removal provision unconstitutional but severable, declining to invalidate the Bureau outright.

Portions of the argument hinted at ways in which the Court could dispense with the case without reaching the constitutional question at all. Justice Ginsburg questioned whether Seila Law has suffered an injury that the Court can redress, since the Civil Investigative Demand was ratified by a Bureau acting director who did not enjoy removal protection. Justice Sotomayor’s questioning indicated that the Court should decide the severability question before the constitutional question, and that if it were to decide that the for-cause provision is severable, then Seila Law’s claim would be moot.

Chief Justice Roberts’s questioning raised concerns with the CFPB’s budgetary structure, which had not been a major emphasis of arguments on either side of the case. The Chief Justice noted that the Bureau may draw its funds from the Federal Reserve, instead of seeking congressional appropriations, and suggested that this rendered the Bureau uniquely independent, which could create separation of powers concerns.

Looking Ahead

Court watchers generally expect the Court to resolve the case by finding the Bureau’s structure unconstitutional and severing the removal clause from the rest of Dodd-Frank. Although this outcome could provide significant Supreme Court precedent on the scope of presidential authority, it need not cause profound change at the Bureau. Director Kraninger would become removable at the will of the president, but she was appointed by President Trump and to date, has not drawn criticism from the administration or its allies on Capitol Hill. However, if a Democrat prevails in the 2020 presidential election, Director Kraninger’s five-year term, currently scheduled to run through late 2023, could be curtailed.

There is less clarity regarding the consequences if the Court were to hold that the removal provision is both unconstitutional and not severable. In that case, all of Title X of Dodd-Frank could be invalidated. This result would create doubt regarding the legal effect of all enforcement proceedings, rulemakings, and other actions the Bureau has taken in its nine years of existence. While the Court could stay the effect of its ruling to allow time for a legislative repair of the statute’s constitutional infirmity, the prospect of a divided Congress passing CFPB reform is uncertain at best.

If the Court opts not to decide the constitutional issues and instead resolves the case on justiciability grounds, similar litigation is almost certain to continue. The constitutionality of the Bureau’s structure has been an issue of vigorous litigation for years, and the circuit courts of appeal have come down on both sides of the issue. Indeed, just this week, a panel of the U.S. Court of Appeals for the Fifth Circuit upheld the constitutionality of the removal provision. Such a split in authority may persuade the Supreme Court to provide a definitive ruling in Seila Law.