Congress established the independent executive agency in the wake of the 2008 financial crisis, mandating that it would be led by a single director, serving a five-year term, who could only be removed by the President for “inefficiency, neglect of duty or malfeasance.”
“We all know the story by now: mortgages sold to people who couldn’t afford them,” President Barack Obama said in a 2011 speech. “Huge bets — huge bonuses — made with other people’s money on the line,” he said and noted “the house of cards collapsed.”
At issue before the court is the single director leadership structure of the CFPB. Critics, including the Trump administration, the current director Kathleen Kraninger, as well as a law firm fighting a CFPB-led investigation, argue that the director has too much power and is insulated from removal if the President has policy disagreements.
Such a structure, the argument goes, encroaches on the President’s authority over the executive branch.
The dispute comes as some conservatives, including President Donald Trump’s twso Supreme Court nominees Brett Kavanaugh and Neil Gorsuch, seek to diminish the power of agencies, arguing that they are unaccountable to the public and disrupt the separation of powers.
Supporters of the CFPB, on the other hand, say the bureau needs independence and discretion to protect the consumer.
The challenge is brought by Seila Law, a law firm that helps individuals resolve their debts, which has a client currently involved in a CFPB investigation. Kannon K. Shanmugam, a lawyer representing the law firm, says his client declines to turn over documents requested by the agency because the CFPB is unconstitutionally structured, wielding an outsized “enormous power over American businesses, American consumers and the overall US economy.”
Shanmugam argues that the court should strike down the leadership structure and send the issue back to Congress for a fix. Alternatively, he says the Court should strike the section of the sprawling law that created the bureau.
Solicitor General Noel Francisco agrees that the Court should hold that the single director structure is invalid and violates the separation of powers.
“This case concerns whether Congress may restrict the President’s ability to remove the single principal officer of an agency exercising substantial executive power,” Francisco argued in court briefs, concluding: “It may not.”
The Trump administration suggests that the CFPB can continue, but the Court should sever the part of the law that says the President can only remove the director “for cause” and not “at will.”
That legal position aligns with that taken by Kavanaugh when he was a lower court judge and issued an opinion in a separate case concerning the bureau. Kavanaugh said that the “massive power” and “absence of Presidential supervision” threatens individual liberty and the constitutional system of checks and balances.
Because no party supported the current structure of the agency, the Court announced it would appoint one of the best appellate lawyers in the country — former Solicitor General Paul Clement — to do so.
As a threshold matter, Clement argues that the Court should sidestep the weighty issues of the case and take available offramps. One avenue concerns the fact that Kraninger, the current director of the CFPB, does not dispute that she should be removed at will if the President disagrees with her decisions.
“This case presents a remarkably weak case for invalidating an Act of Congress,” Clement said, suggesting the court should wait to decide the issue when there is a director who is at odds with the President.
If the Court were to reach the merits, Clement advises the justices that Congress has “repeatedly hewed to the view” that the discharge of certain specialized roles are best discharged by someone who “does not hold his office at the pleasure of the president.”
When Warren initially contemplated the makeup of the CFPB she envisioned a multi-member director format, similar to other federal agencies. But asked about the Supreme Court dispute while on the campaign trail last week, she said that when she was working to build the agency, “We did everything possible” to insulate it from the “whims of an individual president, because we wanted that agency to work on behalf of the people.”
Under the Trump administration, she said, “the agency hasn’t been as aggressive as I think it should be” but it is still out there, “it’s still a cop on the beat.”
CNN’s Daniella Diaz contributed to this report.