Consumer Finance Litigation

On June 29, 2020, the United States Supreme Court held that the structure of the Consumer Financial Protection Bureau (“CFPB”) is unconstitutional. Specifically, the Court held that the CFPB director must be dischargeable at will by the president to prevent infringing upon the separation of powers between the legislative and the executive branches.  Chief Justice John Roberts wrote the majority decision. The ruling may create an avenue to challenge nearly a decade’s worth of rulings and penalties issued by the CFPB since its creation in 2010.

Appellant Siela Law argued that need not respond to a request for documents issued by then-director Richard Cordray because the CFPB director enjoyed too much power and independence. In its 5-4 ruling, the United States Supreme Court agreed in part with Siela Law’s arguments, although it deferred to the 9^th Circuit Court of Appeals for a new ruling on the document request.

The Court framed the issue as follows: “The CFPB Director has no boss, peers, or voters to report to. Yet the Director wields vast rulemaking, enforcement, and adjudicatory authority over a significant portion of the U. S. economy. The question before us is whether this arrangement violates the Constitution’s separation of powers.” The Court found such a structure unconstitutional, holding, “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.”  In so ruling, the Court found the provisions regarding the CFPB severable and held, "[t]he agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will.”

A concurrence in part, dissent in part by Justice Clarence Thomas argued that the Court should have declared every civil investigative demand issued by the CFPB director invalid due to its unconstitutional structure.  Thus, Justice Thomas’ opinion provides something of a road map for future litigants to argue to lower courts that investigative demands issued by the CFPB while its director enjoyed unconstitutional power should be invalidated.  Justice Thomas wrote, “As the Court recognizes, the enforcement of a civil investigative demand by an official with unconstitutional removal protection injures Seila . . . Presented with an enforcement request from an unconstitutionally insulated Director, I would simply deny the CFPB’s petition for an order of enforcement.”

Thus, while the Supreme Court’s decision ends nearly a decade’s worth of argument over the CFPB’s structure, it may just be the beginning for the CFPB who must now sort out what to do with rules, enforcement actions, and civil investigative demands issued at the behest of a director wielding unconstitutional authority.

The Court’s opinion can be found here.