Supreme Court Weighs Fate of Consumer Protection Agency

WASHINGTON (Reuters) -
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(Reuters/Toya Sarno Jordan)

The Supreme Court on Tuesday considers a challenge backed by President Donald Trump’s administration to the structure of a federal agency assigned to protect consumers in the financial sector that could undermine its independence from presidential interference.

The court, which has a 5-4 conservative majority, will hear a planned 70-minute argument involving the Consumer Financial Protection Bureau (CFPB) brought by a law firm that had been investigated by the agency, arguing that its structure infringes on presidential powers as laid out in the U.S. Constitution.

It is one of two significant business-related cases the court is hearing on Tuesday. The other involves the authority of the Securities and Exchange Commission to recover ill-gotten profits obtained through misconduct.

Trump and his fellow Republicans have sought to undermine the CFPB, created under his Democratic predecessor Barack Obama in 2011 in the aftermath of the financial crisis. Trump’s appointee to head the agency, Kathy Kraninger, took office in 2018 over the objections of Democrats and consumer advocates.

Orange County, California-based law firm Seila Law LLC has argued in the case that the entire agency should be struck down. The most likely outcome – and the one recommended by Trump’s administration – is that the Supreme Court rules that a president can remove the CFPB’s director at any time. The law firm lost in lower courts and appealed to the Supreme Court.

The legal fight focuses on whether the single director of the agency, appointed by the president to a five-year term, has too much power because the president has limited authority to remove that individual.

Seila Law argued that the structure violates the U.S. Constitution’s separation of powers provisions that vest executive authority with the president and limit the power of Congress to encroach in that area.

Under the 2010 Dodd-Frank Wall Street reform law that established the agency, the president can terminate a director only for “inefficiency, neglect of duty or malfeasance in office.” Lawmakers wanted the agency to be independent from political interference.

The challenge, one of several targeting the agency, was brought by Seila, which specializes in resolving consumer debt issues, in response to a 2017 request from the CFPB for information and documents as part of an investigation into whether the firm had violated federal consumer financial law.

The San Francisco-based 9th U.S. Circuit Court of Appeals ruled last year that the CFPB’s structure is constitutional.

Trump’s administration and the CFPB itself agree with the challengers in the case. The Democratic-led House of Representatives has intervened in the case in defense of the agency.

The ruling, due by the end of June, is likely to affect a similar challenge to the Federal Housing Finance Agency, also led by a single director.