Deepak Gupta is the founding principal of Gupta Wessler PLLC, a lecturer at Harvard Law School and former senior counsel at the Consumer Financial Protection Bureau.
The latest irregularities at the Department of Justice—a tweet by President Donald Trump, an abrupt about-face and the walkout of an entire prosecution team, all in the same day—remind us of the need to ensure that at least some government functions are independent of direct presidential control. We can all agree, I hope, that the president shouldn’t be directly interfering with pending criminal prosecutions (especially prosecutions of his own political operatives, for actions arising out of his own campaign).
But what about when a consumer-protection agency brings an enforcement action against a bank? Or when the Fed sets monetary policy? Should it be different?
By interfering in the Roger Stone case, the president may not have violated any enforceable legal requirements. But he surely shattered some essential legal norms. For independent agencies, and financial-regulatory agencies in particular, similar norms of independence have developed over time into a body of law. It’s that body of law that will come under the microscope on March 3, when the Supreme Court hears oral argument in Seila Law LLC v. Consumer Financial Protection Bureau. What a strange time in our history for the court to be poised to eliminate key constraints on presidential power.
As a former senior counsel at the Consumer Financial Protection Bureau—I was among those who helped launch the agency under Elizabeth Warren’s leadership—I am hopeful that the CFPB will continue to be permitted to fulfill its important mission to protect American consumers from predatory lending and deceptive and unfair financial practices. I filed an amicus brief for leading scholars of financial regulation in the Seila Law case, have participated in defending the agency against previous constitutional challenges and have testified on the issue before Congress. In this post, I’ll reflect a bit on what’s at stake. The bottom line: This case could end up being purely symbolic. Or it could end up disrupting American government for generations.
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Independence in financial regulation isn’t new. Since the Civil War, the Office of the Comptroller of the Currency—the obscure but powerful office that supervises the national banking system—has been headed by a single comptroller who is appointed by the president, with the Senate’s advice and consent, for a five-year term. By statute and tradition, it has long been understood that the Comptroller of the Currency may only be removed by the president for cause.
During the New Deal, the constitutionality of this kind of statutory for-cause removal protection for financial regulators was tested and upheld. In the landmark case of Humphrey’s Executor v. United States (1935), the Supreme Court held that President Franklin Roosevelt couldn’t lawfully remove a commissioner on the Federal Trade Commission for solely political reasons.
For nearly a century, Congress has relied on Humphrey’s Executor to design agencies that respond to changing needs. In financial regulation, legal protection for independence makes particularly good sense. There’s a special danger that politicians might interfere directly to place their own short-term political gain ahead of what’s best for the economy in the long run. And there’s also a serious danger that the powerful financial-services industry will capture an agency. The financial-services industry has been far and away the largest source of campaign contributions and is a top source of lobbying expenditures. Without safeguards, Wall Street will get its hooks in.
When the CFPB was created in the wake of the 2008 financial crisis, Congress drew on both the traditions of agency independence and an emerging scholarship on the dangers of capture. The Dodd-Frank Act established the CFPB as an “independent bureau,” housed within and funded by the Federal Reserve System, that could bring enforcement actions, write regulations and perform supervision of financial institutions without direct political interference.
Just like the OCC, the bureau is headed by a single agency head who is appointed by the president, with the Senate’s advice and consent, for a five-year term. And just like Federal Trade Commissioners, that director has statutory for-cause protection from removal. At the same time, Congress created additional accountability mechanisms—including a unique veto procedure under which other financial agencies, through the Financial Stability Oversight Council, can gang up on the CFPB to nullify its rules.
The main question before the court in Seila Law is whether the CFPB’s structure—and the single director’s for-cause removal protection, in particular—is constitutional. If the court concludes that the answer is no, it then has to decide whether to sever the for-cause removal provision and allow the rest of the statute creating the CFPB to remain in place.
Based on a recent gathering of court-watchers and advocates I attended this past weekend, I think it’s safe to say that the smart money is on the court’s ultimately reaching something akin to then-Judge Brett Kavanaugh’s position in the U.S. Court of Appeals for the D.C. Circuit: holding the for-cause provision unconstitutional but severing it from the rest of the statute. If that’s what happens, the CFPB may be able to go on largely as it has, and the real question will be what the court’s opinion says about agency independence more broadly. There are many different variables at play here: What will the court say about the viability of Humphrey’s Executor? Will the court invent an atextual distinction between multi-member commissions like the FTC and single-director agencies like the CFPB, suggesting that for-cause protection is somehow constitutionally acceptable for the former but not for the latter? Will the court cast doubt on the bureau’s funding structure in the process? What will the implications be for independent agencies across the government, and for Congress’ ability to design agencies in the future? It seems likely there will be more than two opinions.
These are weighty issues, and the court shouldn’t reach them unless it has to. Several amici, led by court-appointed amicus Paul Clement, have raised compelling questions about whether the court should be deciding these issues at all. The actual case that gave rise to this constitutional showdown is about the CFPB’s ability to enforce a civil investigatory demand against Seila Law LLC—a private entity that has no interest in whether the director is in fact removable only for cause. And current CFPB Director Kathy Kraninger already believes herself to be serving at the pleasure of the president and says that she is acting accordingly. So how is there an Article III case or controversy here? How is there any injury that can be traced to the for-cause provision or remedied by its invalidation?
Even apart from Article III, there’s another possible off-ramp. The language of the for-cause removal provision is actually quite modest. It merely says that the CFPB’s director may be removed by the President for “inefficiency, neglect of duty, or malfeasance”—the same language at issue in Humphrey’s Executor. As Clement points out, this standard has long been understood as requiring the president to have some reason, aside from simply wanting his “own man,” for removal. But we don’t really know what the language means beyond that. Intriguingly, two scholars have recently suggested that this same statutory language was originally intended to expand removal power, giving permission for rather than protection from removal when statutes would otherwise make officers unremovable. Why not interpret the statute narrowly, to avoid a major constitutional question?
There’s good reason to fear that the court will vote 5-4 to strike down the CFPB’s structure and sever the offending for-cause provision. But, depending on what else the court’s opinion says, that outcome may not really hamper the bureau’s ability to continue to do its job for American consumers. The decision could end up being a symbolic victory for the conservative legal movement without much impact on the ground—something like 2010’s Free Enterprise Fund v. Public Company Accounting Oversight Board, which ruled that members of the oversight board could not be insulated from presidential removal but otherwise left the board in place. Indeed, the most immediate effect of such a decision could be that a Democratic successor to the president would get to choose his or her nominee to direct the agency sooner than would otherwise have been possible.
On the other hand, the real danger here is to the concept of agency independence more broadly—a concept that consists of a fuzzy mix of settled norms and legal understandings that have grown up over the centuries. Without protection for agency independence, the partisan and electoral disputes of the day may end up driving financial and monetary policy—a concern to which Congress has been attuned since the Founding—and presidents will be free to threaten removal to stoke the economy for short-term political gain, at the expense of economic stability.
Return to the example at the outset: the Federal Reserve Board’s power to set monetary policy by raising or lowering interest rates. Now consider for a moment what might happen if the removal protection for Federal Reserve Board members were eliminated by the Supreme Court as a result of a sweeping decision in this case. Over the last 18 months, our president has publicly blasted the Federal Reserve, in interviews and on Twitter—including 25 times in the month of August alone. He has repeatedly called for the Fed to slash interest rates to “ZERO, or less,” criticizing Federal Reserve Chair Jerome Powell for his naïveté. The president reportedly considered removing Powell from his position because of dissatisfaction with the Federal Reserve’s monetary policy, but concluded that Congress’ for-cause removal protection for the Fed likely prevents him from doing so.
Across our government, the guardrails are already coming off at an alarming pace. Does the court really need to remove one more?
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