Appellate Circuit

Bill Barr and the DOJ Does a U-Turn in the Selia Law v. CFPB Case Before the US Supreme Court

The Trump administration believes that the bureau’s lone director is unconstitutionally shielded from accountability to the president, yet the Justice Department’s final brief before oral argument urged the Supreme Court not to issue a ruling that will halt the CFPB’s “critical work.”

Trump’s DOJ urges Supreme Court to keep CFPB up and running

Alison Frankel | Feb 18, 2020

Facing an existential threat at the U.S. Supreme Court, which will hear oral arguments on March 3 in a constitutional challenge to the unusual structure of the Consumer Financial Protection Bureau, the CFPB has found an unlikely champion. The Trump administration believes that the bureau’s lone director is unconstitutionally shielded from accountability to the president, yet the Justice Department’s final brief before oral argument urged the Supreme Court not to issue a ruling that will halt the CFPB’s “critical work.”

“The bureau,” DOJ argued in a reply brief filed on Friday, “is the federal government’s only agency solely dedicated to consumer financial protection.” Invalidating the entire statute that created the CFPB, DOJ said, will wreak havoc not just for consumers but for the banks, mortgage lenders, credit card companies, and other financial institutions regulated by the CFPB. The government even cited the billions of dollars CFPB has recovered in enforcement actions as proof of its crucial mission.

The California debt relief firm that brought the CFPB case to the Supreme Court, meanwhile, continued to argue in its final brief that if the Supreme Court deems the CFPB’s structure to be a violation of separation of powers doctrine, the justices must either strike down the entire Consumer Financial Protection Act or else leave it to Congress to fix the problem.

This debate over how to solve the CFPB’s purported constitutional flaw goes back to October, when the justices granted Seila Law’s petition for Supreme Court review. Seila’s lawyers at Paul Weiss Rifkind Wharton & Garrison had asked the Supreme Court to decide whether the provision that shields the CFPB director from being removed without good cause runs afoul of the separation of powers doctrine. The Justice Department and the CFPB, repudiating the CFPB’s longtime defense of its structure, backed Seila’s petition, arguing that the provision was an unconstitutional restraint on the president. The justices themselves added a second question when they agreed to hear the case: If the court finds that the CFPB’s structure runs afoul of separation of powers doctrine, can the justices simply sever the provision insulating the director from removal?

Seila and the Trump administration parted ways on that question in their opening briefs, as I told you in December. The government posited severability as an easy fix. After all, DOJ said, the Dodd-Frank financial reform act – the umbrella statute encompassing the Consumer Financial Protection Act – includes a severability provision to save the entire law from unconstitutional clauses. And there’s no reason, DOJ said, to believe that Congress would rather have had no CFPB at all than a CFPB whose director can be fired at the president’s will.

Seila argued primarily that the justices need not decide what to do about the CFPB’s unconstitutional structure. The debt relief firm said it was simply challenging a CFPB civil investigatory demand, so if the Supreme Court found the CFPB director to have been unconstitutionally appointed the CID would be voided and the case would be over. Seila argued that the justices should leave it to Congress to figure out how to make the CFPB’s structure comport with the Constitution – but if the court insisted on crafting a cure, Seila said, it should invalidate the entire Consumer Financial Protection Act because Congress would have created a CFPB whose director could be fired without cause.

Seila’s amici overwhelmingly agreed that the appointment provision cannot be severed. (Only one amici sided with DOJ on that question.) Paul Clement of Kirkland & Ellis, who was appointed by the Supreme Court to defend the CFPB’s constitutionality, did not address severability.

Both Seila and DOJ used the opportunity of their reply briefs to counter one of Clement’s most provocative arguments. Clement and some influential amici asserted that the Supreme Court does not actually have jurisdiction to decide whether the CFPB’s structure is unconstitutional because the CFPB’s investigative demand for documents from Seila Law does not depend on the constitutional question. Clement and the CFPB’s backers urged the Supreme Court to wait for a showdown between the president and a CFPB director. DOJ and Seila argued that every action by a constitutionally flawed agency is tainted – and the agency’s targets have a right to challenge those “infected” actions.

DOJ and Seila also agreed that Clement’s attempt to fit the CFPB’s structure within the penumbra of 1935’s Humphrey’s Executor v. U.S. (55 S.Ct. 869) falls short. In that case, the Supreme Court upheld the constitutionality of the Federal Trade Commission, but Seila and DOJ said the court’s analysis applies only to “quasi-judicial” agencies headed by several commissions, not to the CFPB’s lone director. They also hinted that if Humphrey’s Executor controls this case, then the Supreme Court should consider overruling its precedent, which Seila described as “erroneous and already repudiated.”

Arguments in the CFPB case, in other words, can go in all kinds of directions. But the one thing we know for sure, as DOJ pointed out in the brief it filed Friday, is that the justices are interested in how to solve a constitutional flaw if they find one. So it’s notable that the government emphasized the importance of the Supreme Court resolving uncertainty about the CFPB as neatly as possible. If the justices punt on the constitutional question, DOJ said, the CFPB will remain under a shadow that casts doubt on its mission.

And that mission, DOJ said, is critical. The CFPB “has issued numerous significant rules, obtained billions of dollars in relief through enforcement and reached millions of consumers through its education functions,” DOJ’s brief said. Erasing the bureau and the statute that created it “would lead to grave doubt as to the validity of those rules and eliminate the safe harbors Congress established for regulated entities who relied in good faith on them.”

Seila Law noted in its new brief that DOJ dedicated fewer than three pages in its opening brief to the question of severability.

Alison Frankel; But I’d say that the government’s final filing makes a strong case for the justices to adopt the least disruptive approach to solving the CFPB’s alleged constitutional defect.

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