U.S. Supreme Court
June 29, 2020
In a 5-4 vote, the Supreme Court ordered changes to the Consumer Financial Protection Bureau. The court severed the “for cause” provision in the Dodd-Frank law that created the agency, meaning that the president will now be able to fire the head of the CFPB at will. This ends a 10-year battle over the constitutionality of the CFPB leadership structure and whether the director held too much unchecked power.
The justices rejected much broader constitutional arguments, advanced by the business community and the Trump administration, that could have dismantled the agency altogether. The bureau was designed to protect consumers from abusive financial-industry practices on products like mortgages, student loans and credit cards. The CFPB still has guaranteed funding source from the Federal Reserve, as opposed to appropriations.
In an even more pragmatic sense, the ruling opens the way for former vice president Joe Biden, if elected in November, to fire and replace the acting CFPB director Kathy Kraninger, President Trump installed in 2018.
The fact is, the leaders of various executive branch entities where independence is at a premium, such as the FBI and the Federal Reserve, operate under a variety of rules. The FBI director serves a 10-year term — subject to presidential firing for any reason. The Federal Reserve chair serves a four-year term, subject to presidential firing “for cause,” a term that implies misconduct, not mere disagreement with the president — but which has, fortunately, yet to be tested.
Richard Cordray was the first director in the agency’s short history and said the decision otherwise has little impact on the financial services industry that the CFPB regulates. He argues that the decision may actually bust the backlog of pending lawsuits from companies that have disputed CFPB actions on the basis of unconstitutionality.
The CFPB is novel in its power to regulate and supervise non-bank lenders that otherwise would not be covered by banking regulators like the Federal Reserve, Federal Deposit Insurance Corp., or the Comptroller of the Currency.
Trump has sought to weaken independent regulatory agencies since coming into office. The administration first took aim at the bureau in 2017 when it appointed Mick Mulvaney—a fierce critic of the agency when he served in Congress—as interim director after Richard Cordray resigned under what was believed to be political pressure from the Trump administration.
As interim director, Mulvaney called off a four-year investigation into World Acceptance, a lender targeting subprime borrowers. He also sided with lenders in a lawsuit against the CFPB to block new industry regulations, and then fired the agency’s 25-member advisory board after 11 of its members publicly criticized him in a news conference. Mulvaney’s actions were enough to push former student loan ombudsman Seth Frotman, who served as a watchdog for student loan servicing companies, to resign.
At least for the foreseeable future, this “losing” verdict represents a big victory for consumers, in three respects
First, this case was the last gasp for the CFPB’s opponents, who had hoped to dismember it through the courts. No tenable constitutional challenges remain to the bureau’s considerable authority. As no less an avowed critic than former acting director Mick Mulvaney has grudgingly conceded, the CFPB “is not going anywhere,” and it is “going to play an important role in government.”
Second, the constitutional challenges had repeatedly impeded the bureau’s enforcement work in many cases. Just as the agency’s lawyers were trying to focus the court on predatory or deceptive actions by certain companies, those companies would throw the constitutional flag to gum up the works. By raising these arguments, they secured delays that stretched for months or even years to prevent the courts from addressing their conduct. Now, with the constitutional issue definitively settled by the highest court in the land, those tactics will no longer be effective.
Third, and most ironically, the immediate effect of the court’s decision is to cut off protections for the one director currently affected by the case: President Trump’s appointee, Kathy Kraninger. Although these stones initially were thrown at me, in the hopes of ousting me or at least intimidating the CFPB into doing less for consumers, they now are landing on a different target. Kraninger had been confirmed for a five-year term lasting to December 2023. But after today’s ruling, she can be dismissed at any time — including Jan. 20, 2021, when a new president may take office. If that happens, the tenor of the agency’s work is sure to change once again, this time tipping back toward strongly protecting consumers and their families.
In the long run, the practical effects of the case are also likely to be limited: It means simply that each new president will likely appoint a new CFPB director, in much the same way he or she will appoint new Cabinet members. The broader question is whether this ruling will encourage further challenges from conservative academics trying to dismantle the independence of other federal agencies, such as the Federal Reserve or the Federal Communications Commission. Those more far-reaching arguments were vigorously presented in this case, but they fell far short of the mark, with only Justices Clarence Thomas and Neil M. Gorsuch taking the bait.
As with any type of fishing, doctrinal change at the Supreme Court requires immense patience. Perhaps in another decade or two, we will get more answers. We don’t have to wait, however, to grasp the good news that the justices delivered Monday for American consumers: The CFPB is here to stay.
Today, the CFPB is directed by Kathy Kraninger. She was nominated by the president and approved by the Senate in a 50-49 vote in December 2018.
Director Kraninger came to the CFPB from the Office of Management and Budget, where as a Policy Associate Director she oversaw the budgets for executive branch agencies including the Departments of Commerce, Justice, Homeland Security (DHS), Housing and Urban Development, Transportation (DOT), and Treasury, in addition to 30 other government agencies.
Previously she worked in the U.S. Senate, where she was the Clerk for the Senate Appropriations Subcommittee on Homeland Security, which provides DHS with its $40 billion discretionary budget. On Capitol Hill, she also worked for the House Appropriations Subcommittee on Homeland Security as well as the Senate Homeland Security and Governmental Affairs Committee.
Ms. Kraninger also served in executive branch posts with the Department of Transportation. There, after the terrorist attacks on September 11, 2001, she volunteered to join the leadership team that set up the newly created DHS.
Her work at DHS led to awards including the Secretary of Homeland Security’s Award of Exceptional Service, the International Police and Public Safety 9/11 Medal, and the Meritorious Public Service Award from the United States Coast Guard.
Ms. Kraninger graduated magna cum laude from Marquette University and earned a law degree from Georgetown University Law Center. She served as a U.S. Peace Corps Volunteer in Ukraine.
Those in support of Kraninger argue that her ability to lead and manage large government agencies make her credible as a director of the CFPB. Those in opposition criticize Kraninger for lacking knowledge in consumer finance.