Supreme Court Update for Banking and Financial Services Professionals

by Charles W. Prueter

In 2007, a bankruptcy and securities law professor at Harvard Law School proposed the creation of a new independent federal agency to enforce consumer financial protection statutes and regulations and generally to regulate the financial services sector. The professor’s proposal was modeled on the Consumer Product Safety Commission (CPSC), which is a multi-member regulatory commission tasked with promulgating standards to protect the American public from risks of injury and death from products used in the home, school, and recreation. The idea was welcomed by the Administration in 2009, when the Department of the Treasury proposed the creation of a Consumer Financial Protection Agency, which would be a multi-member body tasked with ensuring fairness and protection within the consumer financial protection regulatory scheme. The professor’s concept then made its way into the Dodd-Frank Wall Street Reform and Consumer Protection Act as the Consumer Financial Protection Bureau — but with a significant structural difference that is now the center of a case before the Supreme Court.

That professor, as readers probably know, was now-Senator Elizabeth Warren, who is one of the leading candidates for President. And then-Professor Warren understood that, historically, independent federal agencies properly are organized as multi-member bodies — for example, in addition to the CPSC, the Federal Trade Commission, the Securities and Exchange Commission, and the Federal Energy Regulatory Commission. That is, in contrast to the Department of Labor or the Department of Health and Human Services, for example, which are headed by unitary Secretaries, the heads of these bodies are commissions with three to five members. Moreover, while the Secretary of HHS, for example, is removable at will by the President (this the idea of serving “at the pleasure of the President”), the commissioners of these independent agencies are removable only for cause (i.e., a very good reason like neglect of duty or malfeasance). The upshot is that independent commissioners are not as subject to political pressure from the Executive as are the heads of other agencies. As Justice Brett Kavanaugh has explained in prior writings: “In other words, the heads of executive agencies are accountable to and checked by the President; and the heads of independent agencies, although not accountable to or checked by the President, are at least accountable to and checked by their fellow commissioners or board members.”

But what happens when an independent agency is headed by a unitary director, removable only for cause? That is the question before the Supreme Court now in Seila Law LLC v. Consumer Financial Protection Bureau, No. 19-7. The issue arises because, in contrast to then-Professor Warren’s 2007 proposal and the Treasury Department’s 2009 proposal, Dodd-Frank provided that the CFPB would be headed by a unitary director, removable by the President only for cause. This leadership structure, which vests substantial power in a unitary director and isolates the CFPB from political pressure from the White House, has been the focus of several appeals in the various circuit courts of appeals and now has reached the Supreme Court in this case out of the Ninth Circuit.

Because the CFPB director is uniquely insulated in a way that the unitary leaders of other agencies are not, the challenger in this case, Seila Law LLC, which is a law firm that offers a variety of consumer debt-related legal services and was targeted by the CFPB in an enforcement action, argues that Dodd-Frank violates the separation of powers — i.e., the idea that executives execute, legislators legislate, and judges judge. Seila Law argues that Congress, in creating the CFPB this way, has placed immense power — too much power — in the hands of an unelected director who has the authority to promulgate regulations (a legislative function), enforce those regulations (an executive function), and also adjudge compliance with those regulations (a judicial function). The checks and balances created by the separation of powers are integral to protecting the individual liberties of Americans. The Secretaries who serve at the pleasure of the President are directly accountable to the President, who is accountable to the people. And the members of independent commissions, as Justice Kavanaugh noted, are checked by each other and are recognized as experts in their fields, which curbs the risks of extreme or reckless actions. But, Seila Law contends, the director of the CFPB wields more power than any other individual in the Executive Branch save the President because the director is not directly accountable to the President or to fellow commissioners and largely is beyond the authority of Congress or the courts. Thus, this leadership structure creates a danger that the director of the CFPB could infringe on the rights of Americans, largely unrestrained by the President, Congress, or the Judiciary.

Aside from the jurisprudential implications of this case, perhaps most important for banks and other regulated entities is the possibility that a decision striking down the leadership structure of the CFPB conceivably could unravel all of the decisions that the CFPB has made since its formation. Banking and financial services professionals will want to keep a close eye on this case. The Court likely will hear oral argument in early 2020 and will issue a decision before the end of June.

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