If you have a mortgage or a loan or a credit card, you likely have more protection from deceptive practices in the financial services industry today than you did at the time of the 2008 financial crash. But at the Supreme Court Tuesday, the court's conservative majority voiced skepticism about the independent agency Congress created to protect consumers from abuse in the financial services industry.
In the aftermath of the financial crisis, the CFPB enacted new rules to safeguard the mortgage market and protect consumers from abusive and misleading practices involving everything from credit cards to debt relief. The bureau is headed by a single director, appointed by the president for a five-year term, and lodged in the Federal Reserve.
In order to ensure the director's independence, the law bars the president from firing him or her for any reason except malfeasance, inefficiency, or neglect of duty.
It is that independence from presidential firing that is being challenged as unconstitutional by Seila Law — a law firm under CFPB investigation for misleading practices — and the Trump administration. Both the firm and the administration are asking the Supreme Court, if necessary, to strike down a long line of decisions going back almost a century, that uphold the structure of all independent regulatory agencies.
First up to the lectern Tuesday morning was Seila's lawyer Kannon Shanmugam. "Never before in American history has Congress given so much executive power to a single individual who does not answer to the President," he said.
Justice Sonia Sotomayor interjected: "You said that no other agency has this single director framework, but there are at least two, including the Social Security Administration ... which affects virtually every American."
Shanmugam replied that the Social Security Administration "poses no threat to individual liberty."
"Whose liberty are we speaking of?" shot back Justice Ruth Bader Ginsburg. "What about consumers? ... Congress passed this law so that consumers would be better protected against financial fraud."
Shanmugam pivoted, saying that "because of its desire to protect consumers" Congress had improperly created an agency "insulated from political control."
Representing the Trump administration, Solicitor General Noel Francisco joined in the attack on the CFPB structure. He also got push-back from Ginsburg who noted that it is unusual for an administration to refuse to defend an act of Congress.
Francisco replied that the "general rule is that ... we will defend acts of Congress ... but there is an exception" when a law infringes on the president's power. This law does that, he said, by not allowing the president to fire the director over policy differences. Other independent regulatory agencies, run by multi-member commissions are different, he argued, because they operate based on consensus.
The Supreme Court upheld the independence of those agencies in 1935, ruling unanimously that Congress limited the president's power to fire independent commissioners in order to protect those agencies' independence.
Ours "is a Constitution that does not say anything about removal" or "the structure ... of the government in general," noted Justice Elena Kagan. Given that, she asked "why not leave it to the political branches" to establish the terms for removal?
The Constitution grants the president the power to execute the laws, countered Francisco. "The only way he can do that is if he's fully accountable," for his principle officers and they are accountable to him.
But "removal is like a nuclear bomb," replied Kagan. There are many other ways a president can control officers — appointment, term limits — why this one?
With the Trump administration joining the attack on the CFPB structure, the Supreme Court appointed former Solicitor General Paul Clement to defend the existing law.
"The issue in this case is like the thread on the sweater that if you start tugging on it, and you tug on it hard enough, potentially, the whole sweater comes undone," said Clement shortly after receiving the appointment. "The sweater here really is ... the entirety of the independent agencies ... the whole alphabet soup of agencies."
During arguments Tuesday Clement took a beating from the court's conservatives.
"What about the budgetary consequences?" asked Chief Justice John Roberts. Does that make the head of the CFPB "sort of ... the effective president over the significant swath of the economy ... they don't even have to go to Congress to get their money" because they get their budget directly from the Federal Reserve Board.
Kavanaugh jumped in, wanting to know what is "enough" for the president to fire the director of the bureau.
Sotomayor stepped in, asking Clement to address "head on" the "assumption that ... the president needs unfettered discretion to execute the laws."
Clement replied that it wasn't true for all presidential powers. For instance, when it comes to independent agencies like the Fed "we don't want the president to juice up interest rates right before a presidential election."
Similarly, he pointed to the current coronavirus situation, noting "people are trying to make a political football out of a pandemic ... Congress might decide that the head of the CDC (the Centers for Disease Control and Prevention) should be protected from removal," except for misconduct," because that'll make sure that people get good advice" not political advice.
Ultimately, he said, these decisions about whether and to what degree to insulate an agency from political control are Congress' call, and Congress has been making these calls for over 100 years.
Douglas Letter, counsel for the House of Representatives, was last up to the lectern.
Like Clement he faced incoming fire from the conservative part of the bench, especially from Kavanaugh, who as a lower court judge in a different case, made clear that he thought the structure of the CFPB is unconstitutional.
The next president, he suggested, may have to suffer the consequences of a CFPB director appointed by President Trump because the current director's term does not end until 2023.
But that situation is not unprecedented. Letter pointed to the members of the Federal Reserve Board of Governors, who are appointed for 14-year terms, which means a one-term president is "very likely to have almost no influence over the Fed."
At the end of the day, there appeared to be five conservative justices unwilling to recognize that kind of independence for the CFPB, and four liberal justices with an opposite view.
A decision in the case is expected this summer.