9th Circuit Rules CFPB Leadership Structure is Constitutional

We’ve talked a lot about the Consumer Financial Protection Bureau (CFPB) over the years. We’ve applauded the bureau’s work going after predatory lenders and fighting against mandatory arbitration clauses, and we’ve lamented the neutering of the CFPB under the Trump administration. But while the CFPB is still beleaguered by challenges to the agency’s leadership and critics in Washington who would love to see the bureau erased altogether, the CFPB recently scored a small but significant victory: The Ninth Circuit Court of Appeals ruled that the CFPB’s leadership structure is constitutional.

On May 6, 2019, the three-judge Ninth Circuit panel unanimously ruled that the CFPB’s single-director structure is constitutionally sound, citing Supreme Court precedent set in Humphrey’s Executor v. United States, 295 U.S. 602 (1935), and Morrison v. Olson, 487 U.S. 654 (1988):

“Those cases indicate that the for-cause removal restriction protecting the CFPB’s Director does not ‘impede the President’s ability to perform his constitutional duty’ to ensure that the laws are faithfully executed,” wrote Judge Paul J. Watford in the panel’s opinion.

The Ninth Circuit also relied on an earlier D.C. Circuit Court’s en banc PHH decision which also found the leadership structure to be constitutional. The ruling shot down Seila Law’s appeal to set aside a CFPB civil investigative demand on the grounds that the CID was invalid due to the bureau’s alleged unconstitutional leadership structure.

In addition to rejecting the constitutional challenge, the Ninth Circuit ruled that the CID did not violate the Consumer Financial Protection Act’s practice-of-law exclusion which prevents the CFPB from exercising “supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of a State in which the attorney is licensed to practice law.” The Ninth Circuit determined that the CID fell within the exception allowing the bureau to investigate whether Seila Law was violating the Telemarketing Sales Rule without regard to the general practice of law exclusion.

This was an important victory for the CFPB, but the battle is far from over. Two other cases involving the CFPB’s constitutionality are pending in circuit courts, either of which could create a circuit split that could move the Supreme Court to step in. We’ll be following these cases closely over the coming months.