Supreme Court Update for Banking and Financial Services Professionals

by Charles W. Prueter, Waller

“Gentleman, this is a football.” The legendary coach Vince Lombardi kicked off training camp the same way each year, holding up the pigskin in front of his team of professional football players as a reminder that they must master the fundamentals before implementing any sophisticated offensive or defensive schemes. As we kick off 2019 here at the Update, I thought it might be helpful to review the basic structure of the federal court system and to then focus on how that structure leads to one of the fundamental features of Supreme Court litigation—the “circuit split.” Banking and financial services professionals will be particularly interested in a so-called circuit split regarding the powers and constitutionality of the Consumer Financial Protection Bureau, which may soon be resolved by the Supreme Court.

The structure of the federal judiciary was set by Article III of the U.S. Constitution (all capitalization from the original): “The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.” Through a series of enactments in the years after the ratification of the Constitution, Congress has established two categories of “inferior Courts.” The first category is the district court, which is the federal trial court—in essence, the starting point for all federal litigation. Each state is comprised of one, two, three, or four districts (they have no connection to voting districts). In Alabama, the Northern District covers the northern half of the state; the Middle District includes the Montgomery, Auburn, and Dothan areas; and the Southern District stretches from the Mobile Bay to Selma.

A litigant on the wrong end of a judgment in a district court has a right to appeal to the appropriate circuit court of appeal—the second category of “inferior Courts” created by Congress. While each state is broken into districts, the entire country to sectioned into circuits. Our circuit is the Eleventh Circuit, which covers Alabama, Georgia, and Florida. The circuit courts of appeals each have numerous judges—the Eleventh Circuit has 20—who decide cases in panels of three. A decision from a circuit court of appeal generally is binding only in the states encompassed by that circuit. To use an example familiar to all, several years ago, the Sixth Circuit, which includes Tennessee, Kentucky, Ohio, and Michigan, decided that state bans on same-sex marriages were constitutional, while the nearby Fourth Circuit, which covers West Virginia, Virginia, Maryland, and the Carolinas, had held that such bans were unconstitutional. As a result, federal law in the Sixth Circuit states was different than federal law in the Fourth Circuit states—a circuit split! Cases presenting such a split are prime candidates for Supreme Court review, as it is plainly untenable for federal law to mean one thing here and another thing there. Indeed, as readers doubtless are aware, the Supreme Court took up the same-sex marriage question and resolved the split.

The Supreme Court may soon resolve a split on an issue that impacts any bank or financial services firm that has had to deal with the still relatively new CFPB (i.e., essentially all banks and financial services firms). The CFPB, which was established by Congress in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, was designed to be a highly independent agency. Dodd-Frank provides that the CFPB shall be headed by a single Director, who is removable by the President only for cause. This leadership structure, which clearly isolates the CFPB from political pressure from the White House, is the focus of several ongoing appeals before various circuit courts of appeals and is at the center of a petition to the Supreme Court—State National Bank of Big Spring v. Mnuchin, No. 18-307.

Under Supreme Court precedent, an essential aspect of the President’s constitutional authority is the power to remove at will subordinate officers in the executive branch, and that principle calls the CFPB’s for cause provision into question. In other words, the CFPB is shielded from the Executive Branch in a way that other agencies are not. This threatens the separation of powers—i.e., executives execute, legislators legislate, and judges judge—because Congress, in creating the CFPB this way, has undermined the Executive’s ability to execute the laws. Moreover, importantly, this structure has the effect of diminishing (or, at the very least, obfuscating) the Executive’s accountability for the way it goes about executing those laws. In other words, if the CFPB, headed by a single Director, takes a particularly unpopular action, the President could say (or, more likely for this President, tweet) to the people, in effect, “Don’t blame my Administration, I can’t remove the Director.” This is a dynamic that, in my view, is not countenanced by the Constitution.

The actual split arises from the difference between the D.C. Circuit’s decision on the matter—holding that the CFPB’s independence is consistent with constitutional principles—and the Fifth Circuit’s decision on a related matter—holding that a similar agency’s insulation from the Executive Branch renders it unconstitutional. Other similar challenges are working their way through the Second and Ninth Circuits. As a result, it is likely that the Supreme Court will take up the issue and resolve—for the entire country—whether the CFPB may continue to operate in its current form. If and when the issue comes before the Court, we will discuss it here on the Update.

Charles W. Prueter is a trial and appellate lawyer at Waller Lansden Dortch & Davis, LLP, in Birmingham. He can be reached by email at