ACA International member shares account of U.S. Supreme Court oral arguments on landmark CFPB case due for a decision by the end of the court’s term in June. Editor’s note: This article is available for members only.
3/5/2020 16:30
After the U.S. Supreme Court’s oral arguments in a case on the Consumer Financial Protection Bureau’s leadership structure March 3, justices appear split on the case, Seila Law v. Consumer Financial Protection Bureau.
ACA International is closely watching the case for its influence on the CFPB’s leadership structure and possible effects on the timing of the pending proposed debt collection rules under Regulation F.
ACA member Porter Heath Morgan IV, partner with Malone, Frost, Martin PLLC, attended the oral arguments and provided several takeaways from the proceedings.
An important note: This case is not, as many believe, about whether the bureau itself is unconstitutional, rather it’s an examination of whether the provision of the law allowing the president to remove the agency’s director only “for cause” violates the constitutional separation of powers, ACA previously reported in Collector magazine.
It started when the CFPB issued a civil investigative demand (CID) to Seila Law asking for some information about its practices and that it might be in violation of the Consumer Financial Protection Act. Seila Law protested the CID on the basis the CFPB’s leadership structure is unconstitutional and therefore the bureau did not have the authority to issue the CID. In May 2019, a 9th Circuit panel unanimously ruled the CFPB’s single director structure was?constitutional, prompting Seila to file a brief asking the Supreme Court to hear the case to review that finding.
Key players in the case include:
Kannon Shanmugam, managing partner at Paul, Weiss, Rifkind, Wharton & Garrison, and U.S. Solicitor General Noel Francisco, representing Seila Law.
Former solicitor general Paul Clement is arguing the case for the CFPB. Douglas Letter, general counsel to the U.S. House of Representatives and longtime former U.S. Justice Department appellate advocate, is also counsel in the case for the bureau.
“The issue will likely be split 4-4 between the Supreme Court’s conservatives and progressive members with Chief Justice John Roberts moderating a compromise in the middle,” Morgan said. “Conservative Paul Clement, who was appointed to argue the case for the CFPB, seemed to look for moderate approaches to modify the CFPB to appeal that possible compromise.”
Several issues were raised in the arguments, according to Morgan:
“The first issue was standing. It seems that standing often comes up as an issue in Supreme Court cases and this was no different. The four progressive justices seem to have an issue with standing and if the parties had an adverseness of an interest to make this a real controversy, but they are not likely to get the support behind that decision. The court will likely decide the case on the merits over standing.
The next issue that emerged was severability and many questions were asked on both sides regarding the CFPB’s severability clause. The key issue that emerged was if the clause ‘removal for cause’ was declared unconstitutional what would happen to the CFPB. There appeared to be enough support that if its structure would be declared unconstitutional, the bureau would still stand. Seila Law correctly noted that deciding the severability argument does not stop the pending CID against it.
The arguments and briefing before also detailed quite a bit of comparison to other agencies. The CFPB was compared to other agencies with a single director that have been held to be constitutional, such as the Social Security Administration and the Office of Special Counsel. But it was correctly argued that neither agency has the enforcement ability of the CFPB.
There was quite a bit of a discussion and questions centered on the idea of modest restraints on government agencies and the meaning of the ‘for cause’ provision. The standards of ‘inefficiency, malfeasance, and loyalty’ were all brought up, and questions were given to all four advocates to attempt to define ‘inefficiency.’ No advocate had a satisfactory, hard line answer to those questions, which perhaps will be the biggest hurdle for the CFPB to climb to survive. Justice Brett Kavanaugh kept pointing the vision to the next election and what would a new president have to do to meet the ‘for cause’ requirement.”
While serving on the U.S Court of Appeals for the D.C. Circuit in 2016, Kavanaugh authored a majority panel opinion in PHH Corp v. CFPB declaring the CFPB unconstitutional.
“There seems to be a consensus from the four conservative justices and the chief justice that standing would not be an issue, and that there will be a declaration that the CFPB as written is unconstitutional. There also seems to be a consensus that the severability clause in the enabling statute will keep the CFPB in existence,” Morgan said.
“However, there was no certainty or clarity on how the court will provide the remedy to the structure of the CFPB or Seila Law and its pending CID. “The four conservative justices will likely push for a ruling like Kavanaugh’s PHH decision where a five-member board will govern the bureau, but it is unclear whether Roberts will take that leap. Roberts may look to mediate the two sides and rule on a moderate remedy, similar to what he did in his ruling on the Affordable Care Act. Whatever happens, it is likely that this decision will not be delivered until the end of term in June.”
ACA is closely watching the case for its influence on the CFPB’s leadership structure. One possible outcome is for the U.S. Supreme Court to rule the “for cause” removal provision is unconstitutional and send the case back to a lower court or to Congress to discuss the law on the CFPB’s leadership structure, ACA previously reported. Multiple legislative proposals in recent years have focused on changing leadership at the bureau to a commission structure and switching its funding appropriations to Congress instead of the Federal Reserve.
“In all likelihood, based on key opinions in recent Supreme Court and appellate decisions discussed below, the CFPB’s for-cause appointment clause is likely to be held unconstitutional,” according to an analysis of the case from Jane Luxton, partner at Lewis, Brisbois Bisgaard & Smith LLP, which has an ACA International member office in Los Angeles. “For similar reasons, it is likely the court will follow previous precedent and utilize an express severability provision in the CFPB’s enabling statute to excise the unconstitutional provision.”
Hear more insights leading into the oral arguments on a recent episode of ACA Cast and watch for updated reports on the case in ACA Daily.