June 30, 2020

Supreme Court agrees with NAFCU: CFPB structure is unconstitutional

gavelThe U.S. Supreme Court Monday issued its decision in the lawsuit brought by Seila Law challenging the CFPB's single-director structure, determining that it is unconstitutional. NAFCU has long held that the CFPB's leadership structure should be reformed to a commission-based model to ensure transparency and accountability and supported legislative efforts to do so.

"With today's Supreme Court decision in the rear-view mirror, it is essential Congress advance legislation establishing a bipartisan commission at the CFPB to promote greater transparency and accountability," said NAFCU President and CEO Dan Berger. "A bipartisan board offers stable long-term leadership that would better provide for the needs of consumers. NAFCU will continue to advocate for Congress to pass legislation reforming the CFPB's single-director leadership structure into a bipartisan board."

The Supreme Court found that the bureau's "leadership by a single individual removable only for inefficiency, neglect, or malfeasance violates the separation of powers."

"The CFPB’s single-Director structure contravenes this carefully calibrated system by vesting significant governmental power in the hands of a single individual accountable to no one," the Supreme Court wrote in its decision. "The Director is neither elected by the people nor meaningfully controlled (through the threat of removal) by someone who is. The Director does not even depend on Congress for annual appropriations."

In addition to recommending the bureau be reformed to a bipartisan commission, NAFCU has also supported calls to subject the bureau to congressional appropriations oversight.

Despite its unconstitutional structure, the court said the agency may continue to operate, so long as the director is subject to removal by the president at will.

Regarding past orders, the Supreme Court indicated that a director who was not insulated from removal by the unconstitutional structure would have had to ratify past actions by the bureau. The civil investigative demand issued to Seila Law that prompted this litigation contesting the constitutionality of the bureau was issued by then-Director Richard Cordray, but the bureau claims it was ratified by Acting Director Mick Mulvaney, who was removable at will because he was only acting director. The court remanded the case to determine the facts of whether that ratification has taken place in this particular instance.

Prior to the court's agreement to hear the case, the bureau announced it would no longer defend its structure after years of lawsuits and calls to reform it from various stakeholders. This case could also have implications on the structure of the Federal Housing Finance Agency (FHFA). A case, Collins v. Mnuchin, contesting the FHFA’s structure as unconstitutional is currently seeking to be heard by the Supreme Court as well.

Following the Supreme Court's decision, Berger sent a letter to congressional leadership urging the House and Senate to take up proposed legislation that would address the Supreme Court's decision by establishing a bipartisan commission to lead the CFPB.

"We believe this approach is an appropriate and sensible remedy that would bring long term stability to the Bureau in light of the Court’s decision," Berger wrote. "In addition to safeguarding the CFPB from executive and political interference, a Senate confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation, and enforcement by encouraging input from all stakeholders." He added that the Supreme Court's decision seemed to direct Congress to take action as the court "lacks the authority" to remedy the bureau's structure.

Sen. Deb Fischer, R-Neb., recently introduced legislation to reform the bureau's structure and NAFCU joined more than a dozen other trades in a letter supporting the bill, arguing that the current structure undermines regulatory stability.

House Financial Services Committee Member Blaine Luetkemeyer, R-Mo., also introduced NAFCU-supported legislation in March that would reform the CFPB's governance structure to a bipartisan commission. NAFCU joined with 18 trade associations to voice support for the bill.

NAFCU works closely with the CFPB to address issues impacting credit unions and reduce the industry's regulatory burdens.