Trump Pushes for Presidential Power as Supreme Court Weighs CFPB’s Fate
Trump Pushes for Presidential Power as Top Court Mulls CFPB Fate
(Bloomberg) -- The Consumer Financial Protection Bureau’s independence, designed by a Democratic-controlled Congress to insulate the agency from political pressure, now risks being its downfall.
President Donald Trump’s administration is set to argue to the U.S. Supreme Court on March 3 that the Constitution gives him much broader power to fire the CFPB director than is provided by the 2010 law that created the agency.
The case could mean a fundamental change for the CFPB, created as the brainchild of now-Senator Elizabeth Warren after the 2008 financial crisis to regulate credit cards, auto loans and other consumer finance products. The justices could block the bureau from pursuing enforcement actions, put it more squarely under presidential control or even abolish the agency.
The ruling, due by late June, could affect other federal agencies, most immediately the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac. The Supreme Court has deferred acting on appeals in a multi-million-dollar lawsuit against that agency while it considers the CFPB clash.
The fight centers on a provision in the 2010 Dodd-Frank Act that says the president can remove the CFPB director only for “inefficiency, neglect of duty, or malfeasance in office.”
Supporters say that provision is one of several that help ensure the bureau isn’t beholden to powerful banks.
“It was one of the tools to make the agency as independent as possible from political forces so that it was really serving the interests of consumers,” said Allison Zieve, a lawyer with the consumer-advocacy group Public Citizen, which is urging the court to back the agency.
Unique Agency
But critics say the Constitution doesn’t let Congress give an agency director that much freedom from elected officials. The removal provision applies even if a new president takes office with different priorities for the bureau.
“Its insulation from control by the two elected branches -- the president and the Congress -- is unique among Washington agencies that actually regulate private entities,” said Andrew Pincus, a Washington lawyer at Mayer Brown who filed a brief challenging the agency’s setup on behalf of the U.S. Chamber of Commerce.
President Barack Obama appointed the first CFPB director, Richard Cordray, who pursued an ambitious agenda, including rules designed to curb banks’ use of mandatory arbitration and a case against Wells Fargo & Co. for setting up customer accounts without permission. Republicans and some financial services executives accused him of going too far and targeting institutions unfairly.
With Trump unable to fire him, Cordray stayed on for almost a year of the current president’s term before stepping down in 2017 to run unsuccessfully as a Democratic candidate for governor of Ohio.
Kraninger Question
Now under GOP-appointed leaders, the agency has drawn criticism from Democrats for undoing much of Cordray’s work and going too easy on wrongdoers. The current director, Kathy Kraninger, is a Trump appointee who was confirmed by the Republican-controlled Senate in December 2018 to a five-year term. Republicans say the agency has become more transparent and fair.
Paradoxically, a Supreme Court victory for the Trump administration would make Kraninger more vulnerable to being replaced should a Democrat win November’s presidential election. The administration says the court can fix the constitutional problem by stripping the removal protections from the law, leaving the president broad power to fire the director.
In the same vein, Warren and Democratic presidential campaign rivals Bernie Sanders and Amy Klobuchar are taking a position in the case that could prevent them from firing Kraninger should any of them be elected president. The three senators joined a brief urging the court to leave the CFPB intact.
In upholding the agency, a San Francisco-based federal appeals court pointed to a 1935 Supreme Court decision that provides the constitutional justification for dozens of independent federal agencies. That ruling, Humphrey’s Executor v. United States, upheld provisions that insulate the five members of the Federal Trade Commission from being fired in the absence of misconduct.
Drafting Clement
The Trump administration contends the CFPB is different from the FTC because it has a single director, rather than a multi-member commission. FTC commissioners serve seven-year terms that expire at different times, and no more than three members can be of the same political party.
“A single-headed independent agency presents a greater risk than a multi-member independent agency of taking actions or adopting policies inconsistent with the president’s executive policy,” U.S. Solicitor General Noel Francisco argued in court papers.
Because the Trump administration isn’t defending the CFPB’s structure, the court took the unusual step of appointing an outside lawyer, Paul Clement, to make that case. Clement served as Republican President George W. Bush’s solicitor general and is more frequently aligned with conservative causes, including the 2012 Supreme Court challenge to Obamacare.
Clement argued in court papers that the Constitution “expressly grants Congress the power to structure and organize executive-branch agencies and officers.”
The case before the court involves Seila Law, a California firm fighting a CFPB demand for information about its sales pitches to indebted consumers. The CFPB is investigating Seila’s possible role in a scheme that has already produced a $173 million court judgment against another firm, Morgan Drexen Inc.
How to Fix
The key to the case might be what the court does if it finds the CFPB structure to be unconstitutional. The administration says the court should throw out the removal provisions but otherwise let the agency remain intact.
Seila advocates a different approach: It says the court should block the bureau’s demand for information without explicitly striking down the removal provision. That could have far-reaching implications, putting in doubt similar CFPB enforcement efforts as well as the bureau’s regulations.
The court could take the even more dramatic step of invalidating the CFPB altogether, an approach Seila has adopted as its fallback position.
A key justice, the Trump-appointed Brett Kavanaugh, has indicated he isn’t inclined to go that far. Considering the issue in a separate case as an appeals court judge, Kavanaugh called for leaving the bureau intact but letting the president dismiss the director for any reason.
Some business groups are urging the court not to invalidate the agency. The Mortgage Bankers Association, the National Association of Home Builders and the National Association of Realtors told the justices that step “would be massively disruptive to the mortgage industry.”
The case is Seila Law v. CFPB, 19-7.
--With assistance from Elizabeth Dexheimer.
To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net
To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Laurie Asséo, John Harney
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