In response to the 2008 financial crisis, Congress created the Office of Consumer Financial Protection, a federal agency with approximately 1,500 employees that deals with everything from payday loans to financial education programs and helps consumers get navigate the COVID-19 pandemic. CFPB Director Kathy Kraninger was appointed by President Donald Trump and confirmed by the Senate in December 2018 to serve a five-year term. Under the law that created the CFPB, Kraninger can be removed from office only for “inefficiency, negligence of duty or misconduct in office.”

Today in Seila Law v. Consumer Financial Protection Office, a divided Supreme Court ruled that these restrictions on the removal of the CFPB director are unconstitutional. But the justices stopped there, rejecting a request from a California law firm to hold that if the leadership structure is unconstitutional, the court should strike down the rest of the law creating the CFPB as well.

The dispute that was the subject of today’s decision began when Seila Law, a California-based law firm that provides debt relief services to consumers, was being investigated by the CFPB for possible violations of sales rules. of telemarketing. Seila Law challenged the CFPB’s authority to request documents for signature, arguing that the office’s structure is unconstitutional because it has only one director, who has substantial power but can only be removed “for good cause.” Instead, Seila Law argued, the director should be removable “at will,” that is, for any reason.

The United States Court of Appeals for the Ninth Circuit ruled that the removal restrictions do not violate the Constitution. He cited a 1935 Supreme Court decision called Humphrey’s enforcer against the United States, in which the magistrates rejected the argument that the structure of the Federal Trade Commission – with five members who could only be removed “for cause” – violated Article II of the Constitution, which instructs the president to ensure that the laws “are faithfully enforced.”

Seila Law appealed to the Supreme Court, asking the justices for input. When the CFPB agreed with Seila Law that the removal restrictions violate the Constitution, the justices appointed Paul Clement, a former United States attorney general, to defend the Ninth Circuit ruling.

In an opinion by Chief Justice John Roberts, the court ruled that the removal restrictions violate the separation of powers in the Constitution. Article II of the Constitution, Roberts explained, gives the president executive power and empowers him to “see to it that the laws are faithfully carried out.” History and precedent have long confirmed that such power includes the power to remove executive officials.

The Supreme Court has recognized two limited exceptions to the unlimited power of removal of the president. First, Roberts noted, in Humphrey’s Enforcer justices acknowledged that Congress could create just cause removal protections for “a multi-member body of experts, balanced along partisan lines, that performed legislative and judicial functions and was said to exercise no executive power.” Second, in two subsequent cases, the Supreme Court upheld exceptions for so-called “inferior” officials, who have limited functions and lack administrative or policy-making authority, such as an independent lawyer.

The CFPB director, Roberts posited, does not fit neatly into any of these exceptions. Unlike the members of the Federal Trade Commission in Humphrey’s Enforcer, the director can issue binding rules and final decisions; it can also “seek daunting monetary penalties against private parties on behalf of the United States in federal court.” The CFPB director is not an “inferior” officer either: she “has the authority to apply the coercive power of the state over millions of citizens and private companies, even imposing fines of billions of dollars.”

To maintain the removal restrictions, Roberts reasoned, the court would have to extend its previous precedents to what it described as a “new situation”: “an independent agency that exercises significant executive power and is headed by a single person who cannot be removed by the President unless certain legal criteria are met. ” He refused to do so, and concluded that an agency like the CFPB “has no basis in history and no place in our constitutional structure.”

The “most telling” sign that the CFPB’s structure is unconstitutional, Roberts explained, is that it is “almost unprecedented.” There are only four comparable examples of similar positions in American history, Roberts noted. But with “the exception of the one-year hiatus for the Comptroller of Currency” during the Civil War, all “these isolated examples are modern and controversial”; furthermore, “they do not involve a regulatory or enforcement authority remotely comparable to that exercised by the CFPB. The CFPB’s single director structure is an innovation without a foothold in history or tradition ”.

The configuration of the CFPB, Roberts continued, is also “incompatible with our constitutional structure,” which “scrupulously avoids concentrating power in the hands of a single individual.” The only exception to that rule is the president, who is accountable to the public through the voters. But, unless the president can remove her at will, the CFPB director would exercise significant power without being elected or “significantly controlled” by anyone; in fact, Roberts observed, the CFPB “doesn’t even depend on Congress for annual appropriations,” but gets its funding from the Federal Reserve.

Although the removal restrictions are unconstitutional, Roberts explained, they can be separated from the rest of the Dodd-Frank Act, the statute that gives the CFPB its authority. The remaining provisions of the Dodd-Frank Act that deal with the powers and structure of the CFPB may operate without the elimination restrictions, “and there is nothing in the text or history of the Dodd-Frank Act to show that the Congress would have preferred that no CFPB be a CFPB overseen by the president. ”In fact, Roberts noted, the Dodd-Frank Act contains a provision specifically stipulating that if any part of the law is struck down as unconstitutional, the rest of the law should survive. Therefore, the CFPB can continue to operate, Roberts concluded, “but its Director, in light of our decision, must be removed by the President” for any reason.

Judge Clarence Thomas presented an opinion, along with Judge Neil Gorsuch, agreeing in part and dissenting in part. He agreed with Roberts that Humphrey’s Enforcer it should be in the booth of “multi-member expert agencies that do not exercise substantial executive power.” But Thomas argued that the “basis for Humphrey’s Enforcer not only is it unstable “, but in fact” does not exist “, and urged the court to review the case in the future:” The continued reliance “on that decision” to justify the existence of independent agencies creates a serious and continuing threat for the design of our Government. “

Thomas disagreed with the decision to separate the removal restrictions from the rest of the Dodd-Frank Act. Although he expressed “concerns about our modern doctrine of divisibility,” he would have simply denied the CFPB’s request to enforce Seila Law’s demand for documents.

Justice Elena Kagan, in an opinion joined by Justices Ruth Bader Ginsburg, Stephen Breyer and Sonia Sotomayor, agreed that the CFPB should be allowed to continue operating. But she took a very different view of the removal restrictions themselves. In his view, the majority’s conclusion that removal restrictions are unconstitutional is inconsistent with the Constitution, which does not address the president’s removal authority at all, and with United States history, which, he wrote, reflects that the Congress has had “broad freedom.” to create independent agencies like the CFPB. And despite the majority’s suggestion that the president has almost unlimited impeachment powers, subject to only two narrow exceptions, the Supreme Court has “repeatedly upheld provisions that prevent the president from firing regulatory officials, except on matters such as negligence or embezzlement “. This approach, he argued, allows Congress to create the administrative agency that it believes is best suited for a particular setting. “Instead of imposing rigid rules like the majority,” Kagan suggested, the courts “should allow Congress and the president to determine what combination of independence and political control will allow an agency to carry out its intended functions.”

The removal restrictions at the heart of this case must be maintained, Kagan argued, because the CFPB’s powers are quite ordinary compared to those of other independent agencies such as the Federal Trade Commission and the Securities and Exchange Commission. The removal restrictions are likewise “standard fee,” and the president still has “broad authority” to make sure the director is doing his job correctly. “The analysis is as simple as it can be. The CFPB Director exercises the same powers and receives the same removal protections as the heads of other constitutionally permissible independent agencies. “

The fact that there is only one CFPB director should not matter, Kagan said. In fact, he noted, Supreme Court cases, including Humphrey’s Enforcer – It did not depend on the number of people in charge of the agency. And Kagan rejected the majority’s contention that the CFPB’s single-director structure is anomalous, describing the four examples of single-director-led agencies as “just nothing” – the Social Security Administration, he noted, “leads the largest government program in the nation, ”While the Federal Housing Finance Agency“ plays a crucial role in overseeing the mortgage market. ”And in any case, he said, an individual director will be easier to control for the president than a multi-member agency.

Kagan ended his dissent with a reminder of “how this dispute started.” After the 2008 recession, he recounted: “Congress and the President came together to create an agency with an important mission. It would protect consumers from the reckless financial practices that led to the ongoing collapse. “They believed that the director of that agency also” needed a measure of independence, “which led to the ban on expulsion for causes. However, Kagan complained. With today’s decision, “five unelected judges” have rejected “the outcome of that democratic process” and instead sent “Congress back to the drawing board.”

This post was originally published on Howe on the court.