By | May 17, 2021

In two prior posts (here and here) I analyzed cases that challenged the constitutional legitimacy of the Consumer Financial Protection Bureau (CFPB) and Federal Housing Finance Agency (FHFA). In the CFPB case, Seila Law v CFPB,[1] the Supreme Court held that the agency’s Director is an executive officer of the United States and is, accordingly, removable at will by the President. This post will discuss the aftermath of that decision.   

As noted previously, Seila Law raised questions about the validity of prior actions by the CFPB’s Director. On July 7, 2020, the agency addressed this issue by ratification of substantially all final agency regulatory actions taken from January 4, 2012 , the date of confirmation of the first CFPB Director, to June 30, 2020, the date of the decision in Seila Law.[2] The ratification explicitly excluded two agency actions: (i) a rule on arbitration agreements that had been disapproved under the Congressional Review Act; and (ii) a rule on payday, vehicle title, and other high-cost installment loans, a portion of which had been revoked and all of which was under litigation. In addition, the ratification reserved decisions on enforcement actions for a case-by case determination and, in proceedings on remand, the Ninth Circuit found that the civil investigative demand (CID) to Seila Law had been validly ratified.[3]    

And so, roughly four years after its issuance, the CFPB civil investigative demand to Seila Law may be enforced.  During that time, a course of conduct which three agency Directors in two different Administrations found to be sufficiently suspect to justify a CID, has been ongoing. Other than a breathing spell for Seila Law, what, has been gained?  

Article II of the Constitution, which empowers the President to see that the laws are faithfully enforced has been vindicated.  The Biden-Harris Administration lost no time in asserting that power, removing then-Director Kraninger within hours of the President’s inauguration, appointing an Acting Director, and nominating a replacement permanent Director.[4]  Also,  insulation of the CFPB from politics has been removed, so, depending on the outcomes of elections to come, swings in policy (sometimes dramatic) should be expected.  While this may improve public accountability, it makes long-term planning by financial services firms more difficult.  

A related policy concern underlying the Seila Law case is that the agency is an unaccountable arm of the “administrative state” exercising unchecked authority over a material part of the US economy.[5] How this alleged threat to the Republic is addressed by a change in the agency Director’s tenure is debatable.  Further, the unaccountability claim ignores the limitations on CFPB regulatory action contained in its enabling statute, the Administrative Procedure Act, the Small Business Regulatory Enforcement Fairness Act of 1996, and the Congressional Review Act.[6]  Finally, the agency’s Director is subject to Senate confirmation, which can be a means of hobbling agency action and, by the way, thwarting the President’s exercise of Article II powers. The Republic, I would respectfully suggest, is safe from regulatory tyranny whatever the CFPB Director’s tenure. 

Presently, Collins v Mnuchin, a companion case to Seila Law that involves the constitutionality of the tenure of the Director of FHFA, has been heard by the Supreme Court and remains to be decided. However, it is likely that the Court will determine that the Director of FHFA is an executive officer of the United States and, accordingly, that FHFA is an executive agency. This will make it easier for the Biden-Harris Administration to appoint a Director whose objectives are in line with those of the Administration as it formulates policy to address the nation’s housing needs.  Furthermore, the case will also decide whether and how much the Federal Government (for which read: you and I) will have to pay to resolve the conservatorship and emergency financing of Fannie Mae and Freddie Mac. Chapter Four awaits.  

Joseph A. Smith, Jr. is a senior fellow at the Global Financial Markets Center at Duke Law and the former North Carolina Commissioner of Banks.

[1] Seila Law LLC v CFPB, 140 S. Ct. 2183 (2020)

[2] 85 Fed. Reg. 41330 (July 7, 2020).

[3] Jackson S. Freeman, Removal for Cause: Seila Law and the Future of the CFPB and FHFA, 25 NC Banking Inst. 367 (March 2021), pp. 385-388.  Available at: https://scholarship.law.unc.edu/ncbi/vol25/iss1/13

[4] Ibid, p. 388. 

[5] See, e.g., dissent of then-Judge Kavanaugh in PHH Corp. v CFPB, 881 F.3d 75 (DC Cir. 2018), quoted in Freeman, op cit. note 3, p. 378 (note 79).

[6] Ibid, pp. 371, 372.

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