In a 5-4 opinion authored by Chief Justice John Roberts, the court struck down part of the law that established a CFPB director who could only be fired for “inefficiency, neglect of duty or malfeasance in office.”
Defenders of the provision said the rules ensured independence of the watchdog agency, keeping it insulated from politics with a leader not directly answerable to the White House and only removable for cause.
But Roberts writes the director of the agency “must be removable by the president at will.”
“The CFPB Director has no boss, peers, or voters to report to. Yet the Director wields vast rulemaking, enforcement, and adjudicatory authority over a significant portion of the US economy,” he says.
“Such an agency lacks a foundation in historical practice and clashes with constitutional structure by concentrating power in a unilateral actor insulated from Presidential control,” Roberts concluded.
A handful of other federal agencies, including the Social Security Administration, have leaders who can only be removed for cause.
Roberts was joined by the court’s four other conservatives in striking down the rules, but the court was more fractured on whether it means the entire agency has to go. Justices Samuel Alito and Brett Kavanaugh joined Roberts and the liberal justices in concluding the restrictions involving the director could be severed.
While the decision does not impact the current CFPB director, who was appointed by President Donald Trump in 2018, it bolsters the president’s ability to exert control over the agency.
“Today’s decision wipes out a feature of that agency its creators thought fundamental to its mission — a measure of independence from political pressure. I respectfully dissent,” wrote Justice Elena Kagan who was joined by Justices Sonia Sotomayor, Ruth Bader Ginsburg and Stephen Breyer.
The CFPB was created by Congress after the 2008 financial crisis to strengthen oversight and protect consumers. All Americans who have credit cards, home mortgages or investments with major U.S. financial institutions have a stake in the CFPB and its regulation of Wall Street.
“This is a case where Congress loses some power, and the President scores a point in the separation of powers game. But that game is not entirely over,” said Cary Coglianese, a constitutional law professor at the University of Pennsylvania.
“The Court may well be on a path to eliminate the independence of major federal agencies such as the Federal Reserve, the Federal Communications Commission, and other agencies headed by multiple members or commissioners who are protected from at-will removal by the President,” Coglianese added.
Consumer advocates warned the decision will effectively undermine the independence of the watchdog, which was created in the wake of the 2008 financial crisis.
“The Court’s ruling eliminates the Bureau’s independence through the creation of an at-will Director, further exacerbating the political influence that has already plagued the Bureau,” said Consumer Bankers Associations President and CEO Richard Hunt. “This outcome subjects consumers and the financial services industry to potentially radical regulatory shifts with each administration.”
The CFPB is a signature achievement of Obama and Warren, a former 2020 Democratic candidate for president. Both have passionately argued in its defense.
“Let’s not lose sight of the bigger picture,” Warren tweeted of the decision. “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.”