Supreme Court Rules CFPB Leadership Structure is Unconstitutional

The Supreme Court this morning ruled that the leadership structure of the Consumer Financial Protection Bureau is unconstitutional, and that provision may be severed from the Dodd-Frank Wall Street Reform and Consumer Protection Act.

A copy of the 105-page ruling in the case of Seila Law v Consumer Financial Protection Bureau can be accessed by clicking here.

The CFPB issued Seila Law a Civil Investigative Demand seeking answers to seven interrogatories and four requests for documents. The defendant refused to provide the information, leading the CFPB to file a petition with a District Court, which sided with the regulator. Seila Law appealed that ruling to the Ninth Circuit, which also sided with the CFPB. Seila then appealed the ruling to the Supreme Court.

A number of courts at the District and Appellate level have ruled on the constitutionality of the leadership structure of the CFPB — which is run by a single director who can only be fired by the president for cause. The structure imbues the director of the CFPB with too much power, critics argue, and the CFPB’s leadership structure should be changed to a multi-member commission, like that of the Federal Trade Commission, the Federal Communications Commission, and other federal regulators. There are only a handful of agencies that are helmed by a single director — the Federal Housing Finance Agency, the Administrator of the Social Security Administration, and the Office of Special Counsel.

A bill was introduced last week in the Senate that seeks to amend the leadership structure of the CFPB to a multi-member commission.

“The CFPB’s structure has no foothold in history or tradition,” wrote Chief Justice John Roberts in the majority’s opinion. “The CFPB’s single-Director configuration is also incompatible with the structure of the Constitution, which — with the sole exception of the Presidency — scrupulously avoids concentrating power in the hands of any single individual.”

But rather than toss the whole Dodd-Frank Act, the Supreme Court opted for a much more narrow incision, excising the provision of the law that puts a single director at the top of the agency.

“We think it clear that Congress would prefer that we use a scalpel rather than a bulldozer in curing the constitutional defect we identify today,” Chief Justice Roberts wrote. “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’s only instrument, however, is a blunt one.”

What this means for the ARM industry is anyone’s guess at this point. The CFPB is working on a debt collection rule, a supplemental time-barred debt disclosure rule, as well as private enforcement and supervisory actions. Challenges to the constitutionality of the agency may delay any or all of these matters.

This story will be updated throughout this morning.

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