In June 2020, the Supreme Court released its opinion in the case of Seila Law vs. Consumer Financial Protection Bureau (CFPB), which questioned whether the leadership structure of the CFPB was constitutional. In a 5-4 decision along ideological lines, the Court—in an opinion authored by Chief Justice Roberts—ruled that the restrictions placed on the President’s ability to remove the Bureau’s director violated the Constitution’s separation of powers. The Court’s decision drastically increases the President’s power over the CFPB, limiting its independence and making it more vulnerable to political influence. (See Seila Law vs. CFPB)

Formed in 2011 by the Dodd-Frank Act in response to the 2008 financial crisis, the CFPB concentrated the regulation of consumer financial services in a single organization. The CFPB issues regulations for consumer financial products and levies fines to punish unfair or abusive lending practices. To insulate it from political pressure, Congress included two unusual provisions in the Bureau’s structure. First, the CFPB is funded outside of the traditional appropriations process, allowing it to pull money directly from the Federal Reserve without needing to seek approval from Congress.
The second was an independent directorship, nominated by the President for a five-year term and approved under the normal process for executive branch appointees by the Senate. Most executive appointees serve at the pleasure of the President—meaning the President can fire the official if a disagreement arises between them and the White House. The Bureau’s director was given for-cause protection, meaning that they can only be fired for neglect or malfeasance.

In 2017, the CFPB began investigating Seila Law, a firm that provides finance-related legal services. Seila Law challenged the authority of the Bureau to do so, arguing that its director structure was unconstitutional and therefore the Bureau was powerless. The case worked its way to the Supreme Court, which decided that there were two separate issues at hand.

The first question was whether the protections given by Congress to the Bureau’s director were constitutional. The Court ruled that the President has the power to oversee officials within the executive branch, and the limits on removal violated that power. In essence, Congress can not create an agency within the executive branch with the power to make rules and impose major fines and deny the President the authority to supervise that agency. The Court distinguished the CFPB from other nominally independent agencies that are run by multi-member boards like the Federal Trade Commission, which it had previously ruled can be protected by for-cause clauses. (See Humphrey’s Executor vs. United States)

The second question was whether the fact that the Bureau’s director was unconstitutionally protected posed an issue for the rest of the CFPB’s activities. In a 7-2 split, the Court’s liberal minority joined all but Justices Gorsuch and Thomas in affirming that the Bureau’s structure was governed by the principle of severability. Under this principle, an issue that invalidates one part of a law (in this case, the director’s protection from dismissal) does not jeopardize the entire law.

In the end, the Court struck down the director’s for-cause protections but did nothing more, denying the CFPB’s opponents a full-scale victory. The ruling, however, makes the CFPB much more vulnerable to political influence, as the President can now fire directors who run the Bureau in a way deemed unsatisfactory by the President. While the Court limited the independence of the CFPB’s director, it upheld the constitutionality of the Bureau’s unusual funding structure in another case decided in May 2024. (See CFPB vs. Community Financial Services Association of America)