Jim Flynn

Jim Flynn, Money & the Law

The legal structure of the Consumer Financial Protection Bureau is once again in the news.

The U.S. Supreme Court agreed Oct. 18 to review a decision by the 9th Circuit Court of Appeals upholding the constitutionality of the CFPB. The case began when the CFPB demanded documents from a debt collection law firm and the law firm refused to comply, arguing the CFPB’s structure violated separation of powers provisions in the Constitution. The trial court agreed; the 9th Circuit did not.

The Court of Appeals for the District of Columbia, in a 7-3 decision, last year upheld the structure of the CFPB and ruled it did not violate the Constitution. That case didn’t make it to the Supreme Court, even though, in addition to the majority opinion, there were three dissenting opinions and two concurring opinions. This is not surprising, since the D.C. Circuit is thought to be a steppingstone to the U.S. Supreme Court and the judges like to show off. For example, Brett Kavanaugh was one of the dissenting judges in the D.C. Circuit case and he is now a Supreme Court justice.

The claim the CFPB is unconstitutional comes from the fact that it is led by one person who, although appointed by the president and confirmed by the Senate, cannot be fired by a later (unhappy) president other than for cause. For cause is defined as “inefficiency, neglect of duty, or malfeasance in office.”

However, giving the CFPB such independence was exactly what Congress wanted when it created the agency in 2010 as part of the massive Dodd-Frank bill. After greed in the financial services industry tanked the economy in 2008 and 2009, and it was obvious the regulatory structure had failed, Congress wanted a watchdog agency that could carry out its agenda without undue meddling by the executive branch.

Critics of the CFPB acknowledge that many other governmental agencies function under a removal-only-for-cause structure. However, those agencies are headed by a commission, not a director. In his dissent in the D.C. Circuit case, Kavanaugh said this distinction is “profound.” At the CFPB, one person gets to call the shots.

At this point, it seems likely the Supreme Court will rule the CFPB structure violates the Constitution. That is not only the position of President Trump, but that of CFPB director Kathy Kraninger. The U.S. Justice Department, which is supposed to defend acts of Congress before the Supreme Court, is not planning to do so this time.

Notwithstanding all this legal (and political) rancor about its structure, the CFPB continues to carry out its mandate. Since inception, it claims to have returned $13.2 billion to 35 million consumers, and to have processed nearly 2 million consumer complaints.

Jim Flynn is with the Colorado Springs firm of Flynn & Wright LLC. moneylaw@jtflynn.com.

Jim Flynn is with the Colorado Springs firm of Flynn & Wright LLC. Contact him at moneylaw@jtflynn.com. "Best of Jim Flynn's Money & the Law" is now available at amazon.com — paperback or e-book.

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