Supreme Court Update for Banking and Financial Services Professionals

by Charles Prueter, Waller

On the first Tuesday in March, the Supreme Court will hear oral argument in a momentous case: Seila Law LLC v. Consumer Financial Protection Bureau, No. 19-7. Readers familiar with this piece of litigation will recall that the question here goes to the heart of the structure of the CFPB itself. In essence, the challenger says that the CFPB is an unconstitutional creature of administrative law because it is headed by a unitary director who is removable by the president only for cause. This set-up comes straight out of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and represents Congress’s effort to make sure that the agency would be independent and insulated from political pressure. As the Update explained last November, however, Dodd-Frank’s design represented a rejection of prior proposals for an independent consumer protection bureau, which would have created a multi-member commission leadership structure rather than a unitary director.

If Congress had followed historical practice and instituted a multi-member body, this litigation would not be before the Supreme Court today. A unitary director removable at will also would have done the trick. The point is that unitary heads of executive agencies are accountable to and checked by the president when they are removable at will, while members of multi-member commissions for “independent” agencies are accountable to and checked by their fellow commissioners, even though they are removable by the president only for cause. But Congress tried to have its cake and eat it, too: A unitary director who also is independent and removable only for cause. So with the CFPB designed this way, one unelected director 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) — all with the comfort of being removable only for cause (i.e., a very good reason like neglect of duty or malfeasance).

Readers should tune in to coverage of the argument on March 3, and in the March 6 edition of the Weekly News Byte, the Update will have a recap of the Justices’ questions about and the lawyers’ answers to this structure. The decision may have a substantial ripple effect on the CFPB’s enforcement efforts because a win for the challenger conceivably could undo the enforcement actions taken by the CFPB over the last decade.

The CFPB is always of interest in the financial services industry, one way or another. Turning from the major at-will-versus-for-cause challenge before the Supreme Court to a slightly more obscure but also extremely important issue, I wanted to touch on the CFPB’s position that it has the power to pierce the attorney-client privilege at will. Generally, as readers know, the CFPB’s mission — to quote from Dodd-Frank itself — is to ‘‘implement and, where applicable, enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products are fair, transparent, and competitive.” Whether the CFPB has accomplished that mission or gone about executing things the right way is certainly up for debate. Nevertheless, Congress vested the CFPB with broad authority to promulgate rules to regulate the consumer financial marketplace and to supervise institutions for compliance with Federal consumer financial law. The supervision program is focused on detecting, preventing, and correcting practices “that present a significant risk of violating the law and causing consumer harm.” To that end, the CFPB says that “it can compel privileged information pursuant to its supervisory authority.” In other words, the CFPB (like other financial regulators, such as the Federal Reserve Board, the FDIC, and the OCC) operates the assumption that it has the power to demand the supervised institution’s communications with its lawyers.

Basic familiarity with Law & Order teaches that the government should not be able to compel production of the communications between a lawyer and her client. The CFPB nonetheless disagrees when it comes to supervised institutions and relies in part on a statute providing that submission of privileged information to the CFPB “shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim with respect to such information under Federal or State law.” In other words, the statute protects the supervised institution if it chooses to produce privileged information to CFPB. But nothing in that statute unequivocally gives the CFPB the right to demand privileged information in the course of its supervision program.

Producing privileged information may be in the institution’s interest at times. In those circumstances, the statutory protection — providing that disclosure to the regulators will not operate as a total waiver of the privilege — will be important. But at other times, the institution may prefer to invoke its right to keep communications with its lawyers confidential, a right that has been sacrosanct under English and American law for centuries. Eventually, this will come to a head, and the regulators’ power to demand privileged information will be decided in the courts. Until then, supervised institutions should stay vigilant about their rights.

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