Supreme Court Decides Seila Law LLC v. Consumer Financial Protection Bureau

On June 29, 2020, the U.S. Supreme Court decided Seila Law LLC v. Consumer Financial Protection Bureau, holding that the director of the Consumer Financial Protection Bureau (CFPB) must be removable at will by the president.

Congress created the CFPB in 2010, through the Dodd-Frank Act. The Bureau is “under the leadership of a single Director,” who is “appointed by the President with the advice and consent of the Senate” and “serves for a term of five years, during which the President may remove the Director from office only for ‘inefficiency, neglect of duty, or malfeasance in office.’” Congress gave the Bureau “the authority to promulgate binding rules fleshing out 19 federal statutes, including a broad prohibition on unfair and deceptive practices in a major segment of the U.S. economy.” It also “vested the CFPB with potent enforcement powers,” including “the authority to conduct investigations, issue subpoenas and civil investigative demands, initiative administrative adjudications, and prosecute civil actions in federal court.” And Congress gave the CFPB “extensive adjudicatory authority,” including “jurisdiction to grant any appropriate legal or equitable relief” in order to “ensure or enforce compliance with the statutes and regulations it administers.”

Seila Law LLC refused to comply with a civil investigative demand from the CFPB, arguing that the demand was invalid because the structure of the CFPB was unconstitutional. The district court and the Ninth Circuit disagreed and upheld the investigative demand.

The Supreme Court reversed, holding by a 5-4 vote that the CFPB’s structure violates the separation of powers, and by a 7-2 vote that the proper remedy is to sever and strike down the statutory restriction on the president’s ability to remove the CFPB director.

The Court first held that the constitutionality of the CFPB was properly before it, even though the current director “agrees … that her for-cause removal protection is unconstitutional.” The Court noted that Seila Law had Article III standing because it is a defendant resisting a government enforcement action. In that context, the Court stated, “a litigant challenging governmental action as void on the basis of the separation of powers is not required to prove that the Government’s course of conduct would have been different in a counterfactual world in which the Government had acted with constitutional authority.”

The Court then held “that the structure of the CFPB violates the separation of powers.” The Court stated that its “precedents have recognized only two exceptions to the President’s unrestricted removal power.” First, Congress may “create expert agencies led by a group of principal officers” that “do not wield substantial executive power” and are “removable by the President only for good cause.” Second, Congress may “provide tenure protections to certain inferior officers” who have “limited duties and no policymaking or administrative authority.” Considering the CFPB, the Court declined “to extend these precedents to a new configuration: an independent agency that wields significant executive power and is run by a single individual.” The Court stated that executive officials must be “subject to the ongoing supervision and control of the elected President,” who is “directly accountable to the people through regular elections.”

Without a majority opinion, the Court further concluded that the proper remedy was not to strike down the entire CFPB. Instead the Court severed and struck down only the for-cause-removal provision and allowed the rest to stand. Chief Justice Roberts’ opinion noted that “the Dodd-Frank Act contains an express severability clause,” that the remaining provisions of the Dodd-Frank Act “remain fully operative without the offending tenure restriction,” and that “there is nothing in the text or history of the Dodd-Frank Act that demonstrates Congress would have preferred no CFPB to a CFPB supervised by the President.” Chief Justice Roberts’ opinion stated that “our severability analysis does not foreclose Congress from pursuing alternative responses to the problem—for example, converting the CFPB into a multimember agency.”

The Court noted that the investigative demand may have been ratified by an acting director of the CFPB who was removable at will by the president. The Court remanded for the lower courts to determine this issue, and whether it saved the validity of the investigative demand.

Chief Justice Roberts authored the opinion of the Court as to the statute’s validity, joined by Justices Thomas, Alito, Gorsuch and Kavanaugh. Only Justices Alito and Kavanaugh joined the portion of Chief Justice Roberts’ opinion on severability. Justice Thomas filed a dissenting opinion on severability, joined by Justice Gorsuch. Justice Kagan filed a dissenting opinion on the statute’s validity but concurred in the judgment as to severability; she was joined by Justices Ginsburg, Breyer, and Sotomayor.