Wall Street Editorial,
The Supreme Court hears what may be its most important case of the year on Tuesday (3/3), and don’t stop reading because it concerns the Consumer Financial Protection Bureau. This one goes to the heart of the separation of powers and whether the administrative state is accountable to the people.
Seila Law v. CFPB concerns whether a President can remove the bureau’s director only for “inefficiency, neglect of duty, or malfeasance in office.” This should be an easy call, but far more important is the remedy and whether the Justices merely sever the bureau’s mutant head from its unconstitutional body.
Democrats created the CFPB in 2010 as an independent agency within the Federal Reserve. Yet unlike other independent agencies, it was designed to be politically insulated. The bureau gets funding automatically upon its director’s request from the Fed, so it doesn’t need Congressional appropriations.
Most agencies are led by a multi-member bipartisan commission, but the CFPB has a single director whom the President can only fire for cause. Congress gave the bureau broad enforcement power to investigate and penalize almost any business with any relation to finance. But its rules and orders are exempt from review by the Fed, and it needn’t consult the White House budget office. The director, in short, is President of his own little government.
There have only been three independent analogs to the CFPB in history: the Office of Independent Counsel, the Social Security Administration (SSA) and the Federal Housing Finance Agency (FHFA). None possess the CFPB’s enormous regulatory powers.
Congress established the Independent Counsel within the Justice Department after Watergate to oversee executive officers, but Congress declined to reauthorize it after Ken Starr’s probe of Bill Clinton. The FHFA’s structure is currently being litigated, and even Mr. Clinton once mused that the SSA’s single director raised a “significant constitutional question.”
As an appellate judge in 2016, now Justice Brett Kavanaugh ruled in PHH Corp. that the director’s dismissal “for cause” scheme violates the separation of powers. He also found, however, that this provision could be severed from the rest of the CFPB statute so the bureau could survive. Judge Kavanaugh’s ruling was overturned by the full D.C. Circuit Court of Appeals, so his opinion has no legal standing. But its logic is crucial now that he is in the High Court and his vote could be decisive.
Judge Kavanaugh may have been trying to show judicial restraint on the D.C. Circuit, but he now has more leeway on the High Court and the case has been better briefed. Only if he reconsiders the severability issue can he address the law’s gross separation-of-powers abuses. The director’s scheme isn’t a mere construct but is central to the law’s design to be outside the control of both Congress and the President.
Merely severing the “for cause” provision would refashion the bureau into an executive agency like the Environmental Protection Agency but with no Congressional oversight. As the Seila Law brief argues: “Would Congress have preferred a regime in which the President had control over the agency tasked with enforcing those statutes, yet in which it had surrendered its own primary means of control over that same agency? It does not take a Ouija board to figure out the answer.”
The Court would be rewriting the statute on its own, but without addressing its other constitutional infirmities. The better answer is to declare the entire law unconstitutional and give Congress the chance to rewrite it.
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This is all the more important these days when the very structure of the separation of powers is under assault. The liberal legal scholar Cass Sunstein, normally a serious fellow, wrote recently that the Justice Department should be independent of the President. Alexander Hamilton would have devoted several Federalist Papers to refuting that idea of a chief executive for prosecutions.
If the Supreme Court lets the CFPB stand as it is, and merely skirts around the edges of its illegality by barring the “for cause” provision, this will not be the last such agency that Congress creates. The administrative state will become even less accountable to political control than it already is.
Tossing the whole law would invalidate all CFPB actions to date, but the Court also did this when it overturned Barack Obama’s illegal recess appointments in Noel Canning (2014). In the CFPB there may be fewer reliance interests since reverting to the pre-Dodd Frank status quo would leave other independent agencies to enforce consumer financial laws.
Our suggestion is that the Court strike down the law but delay the ruling’s implementation for a year or so to give Congress and the President time to amend the law if they see fit. If the current Court is serious about reviving the original meaning of the separation of powers, the CFPB is an ideal opportunity to send a shot heard ’round Washington.
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