On Friday, the U.S. Supreme Court agreed to hear a case that questions whether the Consumer Financial Protection Bureau’s (CFPB) structure is constitutional. In Seila v. CFPB, the nation’s highest court will specifically review whether the single-director structure and the President's removal authority of the director violate the separation of powers. Just like a double rainbow, everyone is asking what it means. 

A little background

The case stems from the CFPB’s investigation of Seila Law LLC, a debt resolution law firm. Seila Law objected to the CFPB’s civil investigation demand (CID) for information and documents about the firm, arguing that the CFPB was unconstitutionally structured. The CFPB petitioned a federal court for enforcement of the CID. The court found no issue with the CFPB’s structure. Seila Law appealed the matter to the Ninth Circuit, which affirmed the district court's decision. Seila Law is now seeking the Supreme Court’s decision on the matter, arguing that “This case, which cleanly presents the question whether the CFPB is constitutional, is an ideal vehicle for the Court’s review.”

The CFPB caused waves when it took the position that its structure is unconstitutional in its brief on the petition for writ of certiorari—in other words, the petition for the Supreme Court to accept the case. Director Kathleen Kraninger underwent tough questioning for this reversal in the CFPB’s position at the House Financial Services Committee’s semi-annual review of the agency last week. At the hearing, Rep. Carolyn Maloney (D-NY) brought up the fact that just months prior to the Seila brief, the CFPB defended its structure in a different court case, and yet now the CPFB flipped its position. Rep. Maloney then criticized Kraninger for second-guessing Congress, which specifically created the CFPB as an independent agency.

What, exactly, will the Supreme Court review?

The Supreme Court’s order on Friday gives some insight into what, exactly, the court will review. There are two similar but slightly different questions presented in the petitions for writ of certiorari:

  1. Whether the vesting of substantial executive authority in the CFPB as an independent agency with a single director violates the separation of powers; and
  2. Whether 12 U.S.C. § 5491(c)(3)—prohibiting the President from removing the director except for cause—violates the separation of powers.

The Supreme Court requested that the parties brief not only the questions presented, but also what effect a finding of a violation would have on Dodd-Frank by asking:

If the Consumer Financial Protection Bureau is found unconstitutional on the basis of the separation of powers, can 12 U.S.C. § 5491(c)(3) be severed from the Dodd-Frank Act? 

What is the practical impact?

Reading the tea leaves from the order—which, admittedly, is not an exact art—it appears the Supreme Court is considering striking the “for cause” removal clause of Dodd-Frank. On the surface, this seems like it might not have much practical impact since the directorship changed right around the time of the last inauguration. However, there are some deeper implications to consider.


It was no secret that President Trump and Former Director Richard Cordray were not fans of each other. If the President had the authority to remove the director at will, Cordray might have been ousted at the time of the inauguration. This leaves a question about any enforcement, supervisory, and rulemaking actions undertaken during the gap months between the inauguration and Cordray’s resignation in November 2017.

What if the Supreme Court goes further and finds that the single-director structure is unconstitutional? This would put all of the CFPB’s activity since its inception into jeopardy. If the director determines the Bureau’s priorities and activities and the director did not have the constitutional authority to do so on his or her own, what happens to all of the consent orders, settlements, and regulations that came out under that director’s leadership?

Court are already taking action—or rather, putting a stay to their cases—while awaiting the Supreme Court's decision on the matter. In the CFPB's lawsuit against Forster & Garbus, for example, the judge put the case on hold for six months in order to wait and see what the Supreme Court will do.

This could put a lot of things in flux for the debt collection industry, including the long-awaited proposed rules. One thing is for sure: all eyes are on Seila.

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Tags: CFPB