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Seila Law v CFPB: Winners and Losers

posted by Adam Levitin

The Supreme Court's long-awaited decision about the CFPB's constitutionality is out. It's a tricky opinion to parse politically. The Court, in a 5-4 partisan decision, held that the CFPB's structure violates the separation of powers because of the for-cause only removal provision for the CFPB Director in conjunction with the Bureau's other features. Accordingly, the Court found that the Director must be removable at will. Here's my attempt to lay out the winners and losers. As you'll see, they do not track with the headlines of the CFPB losing—the CFPB was actually the winner here for most purposes.  

Winner:  The CFPB

The CFPB walks away from Seila Law still standing tall and able to do everything it could the day before the decision. Don't lose sight of that. You can see this in part by counting the votes. While it was 5-4 (with conservatives in the majority) that the CFPB is unconstitutional, it was 5-4 (liberals + Roberts) on the severability issue, which keeps the agency alive. While the case was a tactical loss for the CFPB, it was actually a strategic victory. If there's one big picture take away, that's it. The CFPB functionally won here.  

Winner:  A Biden Administration

The most immediate practical effect of the decision is that a President Biden can fire CFPB Director Kraninger on Day One of his administration. That's a good thing for those who want to see a more active CFPB right now. In the short term, the Supreme Court might have given a Biden administration a real gift. Indeed, I found it very strange to see the Kraninger CFPB send out an email scheduling an event for March 2021. That might be optimistic in light of the decision. 

Possible Loser:  CFPB Independence 

While the CFPB did score a general win, the decision might affect how the CFPB behaves in the future. The lack of a for-cause-only removal protection might have a chilling effect on future CFPB Directors. If a future CFPB Director is too aggressive, the financial services industry will surely lobby the President to fire the Director. Whether the industry will have enough pull with a future administration to actually get a Director removed or for the White House to get involved is far from certain, however. In other words, the trade-off here is that there's a possibility of putting in a more active Director in January 2020, but that such Director and any future Director will face a political constraint of some type going forward. 

Loser:  The CFPB Commission Proposal

The case's outcome should lock in the CFPB's single Director structure. I think we've heard the end of calls for a multi-member commission structure. And from the CFPB independence, the at-will removal might well be better than an ineffective commission. 

Loser:  Innovation in Government

The Seila Law decision may well ossify the structure of the administrative state. That's unfortunate, as it precludes improvement of government.  The opinion frowns on novelty in administrative agency structure, but the entire administrative state is itself novel vis-a-vis the Constitution. I don't think that all innovation is precluded, but the opinion may well chill innovation in the area. 

Biggest Losers:  Conservative Opponents of the Administrative State

The biggest losers in the decision were the radical conservatives who oppose the idea of agency independence of any stripe and were salivating at a chance to kill off the CFPB in particular. Cases affording the opportunity to revisit the pillars of the administrative state, such as Humphrey's Executor arise perhaps once in a generation. This was their best shot at rolling back the administrative state, and they had as favorable of a Court as they have had in a century. And they failed. To the extent that the game wasn't just about the CFPB, but about the administrative state generally, the case was actually a substantial victory for the administrative state, which survives intact. 

Best Line:  Justice Kagan

The majority offers the civics class version of separation of powers—call it the Schoolhouse Rock definition of the phrase. See Schoolhouse Rock! Three Ring Government (Mar. 13, 1979), http://www.youtube.com/watch?v= pKSGyiT-o3o (“Ring one, Executive. Two is Legislative, that’s Congress. Ring three, Judiciary”).

Yow.  That's gonna leave a mark. 

Also this gem of a line:

Still more important, novelty is not the test of constitutionality when it comes to structuring agencies. Congress regulates in that sphere under the Necessary and Proper Clause, not (as the majority seems to think) a Rinse and Repeat Clause.


What impact do you think this ruling will have on the OCC and FHFA? The removal provisions for the Comptroller seem even blurrier than for the CFPB although in practical effect unless Trump's appoints a new Comptroller and that Comptroller wins Senate confirmation before January Biden will have the ability to appoint a new Comptroller no matter what on day one.

Also OIRA review of CFPB, OCC, and FHFA rules?

The Comptroller removal provisions are much blurrier. Historically, Comptrollers have offered their resignations with new administrations, but this administration is not one for following historical precedent, and Calabria at FHFA has indicated that he doesn't think Seila Law applies to FHFA.

Really fascinating question about OIRA review. Yikes. I wonder if there is an APA challenge on the basis of lack of OIRA review.

You scared me for a bit about OIRA review. I think the answer is that it is not an issue. OIRA review is under Executive Order 12866 and its successors. Those orders are keyed to the statutory definition of "Independent regulatory agency" in 44 USC 3502(5), which includes CFPB, FHFA, and OCC. So Seila Law alone doesn't change things.

The OIRA review especially in terms of the OCC had me and a lot of other people confused. What I have come to understand is that pre Dodd Frank OCC was fully subject to Executive Order 12866 then Dodd Frank added the OCC to the definition of "Independent regulatory agency" in 44 USC 3502(5) however, even after Dodd Frank the OCC has continued to work more closely with OIRA than the other more historically independent agencies for example when the OCC implemented Basel 3 they did a big economic impact analysis with OIRA that did not include the Fed or FDIC. In part my own confusion came from the fact I read and remembered that OCC Basel 3 Economic impact analysis.

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