Administration Determines CFPB Structure is 'Unconstitutional,' CFPB Concedes Same

After years of lawsuits challenging the CFPB's single-director structure and calls from various stakeholders to change its governance to a bipartisan commission, the Trump Administration has determined that the bureau's current structure is unconstitutional.

In a brief to the U.S. Supreme Court (SCOTUS), the Department of Justice (DOJ) indicated that language in the Dodd-Frank Act saying that the president can only remove a director for "inefficiency, neglect of duty, or malfeasance in office" violates the Constitution.

As a result, CFPB Director Kathy Kraninger notified congressional leaders Tuesday that the bureau will no longer defend its structure against challenges in court.

The SCOTUS is considering whether to take up the appeal filed against the bureau by Seila Law, a California-based law firm. The U.S. Court of Appeals for the Ninth Circuit in May ruled that the single-director structure was constitutional, citing a decision last year from the U.S. Court of Appeals for the D.C. Circuit, which upheld the bureau's constitutionality in another case brought by PHH Corp.

In its brief, the DOJ urged the justices to take up the case and find the structure of the agency unconstitutional. But, it said, it would be possible to limit the power of the agency’s director without scrapping it altogether.

Although PHH Corp. declined to appeal the D.C. Circuit's ruling, there continues to be other challenges. The Fifth Circuit Court of Appeals heard oral arguments in April for a challenge to the bureau's constitutionality brought by defendants accused by the bureau in 2016 of engaging in unfair payday lending conduct, and in March, the CFPB defended its structure before the U.S. Court of Appeals for the Second Circuit, arguing that SCOTUS precedent reinforces its constitutionality, and also that its structure "does not impede the president's ability to perform his constitutional duties."

However, earlier this year, the SCOTUS declined to hear a lawsuit challenging the bureau's structure.

In a similar development, the Fifth Circuit recently ruled the single-director structure at the Federal Housing Finance Agency's (FHFA) is unconstitutional. The FHFA had decided not to defend its structure in that case.