Supreme Court Affirms Trump’s Right to Say ‘You’re Fired’ to Consumer Regulator

June 29, 2020 by Dan McCue
Supreme Court Affirms Trump’s Right to Say ‘You’re Fired’ to Consumer Regulator
Kathleen Laura Kraninger testifies before the U.S. Senate Committee on Banking, Housing and Urban Affairs on her nomination to be director of the Bureau of Consumer Financial Protection on Thursday, July 19, 2018 on Capitol Hill in Washington, D.C. (Ron Sachs/CNP/Zuma Press/TNS)

WASHINGTON – The U.S. Supreme Court affirmed President Donald Trump’s ability to fire the head of the Consumer Financial Protection Bureau Monday, but left undisturbed the rest of the statute that created the agency in the wake of the 2008 global financial crisis.

Writing for the majority in the 5-4 ruling, Chief Justice John Roberts agreed with the California-based firm Seila Law which argued that having the agency’s sole director be removable only “for cause” violated the constitution’s separation of powers rule.

The ruling, which makes the bureau director an “At-Will” employee, overturns decisions by a federal district court and an appellate panel, both of whom rejected the law firm’s arguments.

He was joined in the ruling by the court’s four conservative justices.

In a dissent in which she was joined by her three liberal colleagues, Justice Elena Kagan wrote that the majority failed to respect the proper role of the Supreme Court in allowing the two other branches of government to decide how to structure the executive branch.

In Kagan’s view, courts “should stay (mostly) out of the way,” on such matters.

“Insulation from political pressure helps ensure impartial adjudications,” she wrote, adding that: “It promotes continuity, and prevents short-term electoral interests from distorting policy. (Consider, for example, how the Federal Reserve’s independence stops a president trying to win a second term from manipulating interest rates.)”

In order to ensure the CFPB’s independence, the law creating the agency called for it to be headed by a single director, confirmed by the Senate, who would serve a five-year term and who could only be fired for malfeasance, inefficiency or neglect of duty.

That independent structure was challenged by the Trump administration, and a firm that was being investigated by the CFPB for misleading financial practices. Both claimed that the limits on the president’s power to fire the agency head were unconstitutional.

The decision was a victory for President Trump and for those in the business community who hope to trim the sails of independent regulatory agencies.

But the court did not go quite as far as the challengers wanted, limiting its decision only to the single director structure of the agency.

“The CFPB Director’s removal protection is severable from the other statutory provisions bearing on the CFPB’s authority. The agency may therefore continue to operate,” Roberts wrote.

That part of the ruling drew praise from Sen. Elizabeth Warren, the Massachusetts Democrat who first envisioned the bureau while a professor at Harvard Law School.

“Let’s not lose sight of the bigger picture,” she tweeted shortly after the ruling was announced, “After years of industry attacks and GOP opposition, a conservative Supreme Court recognized what we all knew: the @CFPB itself and the law that created it is constitutional”

“The CFPB is here to stay,” Warren added.

What was not entirely clear Monday was whether the independence of other single-director agencies — of which there is no shortage — has now been thrown into doubt.

The CFPB, which was established by Congress under former President Barack Obama in the wake of the 2008 financial crisis, oversees consumer financial markets like credit cards and home mortgages.

It returned nearly $12 billion to consumers through 2017, before largely curtailing enforcement actions under President Donald Trump.

The dispute underlying Monday’s ruling goes back to November 2017, when the first Senate-confirmed director of the bureau, Richard Cordray, resigned with a year left in his five-year term.

Despite the law creating the agency stating the deputy director is to take over if the director resigns, Trump designated his OMB director Mick Mulvaney to head the agency.

Later, Trump named Mulvaney White House chief of staff, and later nominated Kathy Kraninger to fill the role, something she does to this day.

Following its creation, the bureau moved aggressively to protect consumers from bad actors in the banking and financial services sector.

Among those facing scrutiny was Seila Law, which was under investigation over allegations that it charged consumers illegal upfront fees for debt-relief services, and for allegedly deceiving consumers about those services with misleading advertising and marketing material.

The CFPB, as part of its investigation, issued a letter to Seila demanding certain documents. The firm refused to comply, contending that the structure of the agency is unconstitutional.

“Today’s decision wipes out a feature of that agency its creators thought fundamental to its mission — a measure of independence from political pressure,” Kagan wrote.

“What does the Constitution say about the separation of powers — and particularly about the president’s removal authority? (Spoiler alert: about the latter, nothing at all.),” Kagan wrote.

“Nowhere does the text say anything about the President’s power to remove subordinate officials at will,” Kagan concluded.

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