Kathy Kraninger Kathy Kraninger, director of the Consumer Financial Protection Bureau, testifies at the House Financial Services Committee. (Photo: Diego M. Radzinschi/ALM)

The White House should have the power to remove the director of the Consumer Financial Protection Bureau for any reason, the Trump administration's U.S. Justice Department, joined by the financial regulatory agency's leadership for the first time, told the U.S. Supreme Court on Tuesday.

The Supreme Court is weighing whether to hear a challenge to the independent single-director structure of the consumer agency, born from the Dodd-Frank regulatory reforms and long the target of criticism from conservatives and the financial industry. A California-based debt-services law firm, represented by a team from Paul, Weiss, Rifkind, Wharton & Garrison, has urged the justices to overturn a ruling by the U.S. Court of Appeals for the Ninth Circuit that upheld the agency's design and required the firm to comply with a demand for information about its practices.

The Justice Department on Tuesday threw its support to the challenger, Seila Law LLC, and was joined by the director of the consumer bureau, Kathy Kraninger, who was appointed by President Donald Trump. The consumer bureau, until now, had defended the single-director structure of the agency in court cases across the country. Federal law only permits a U.S. president to remove the director of the consumer bureau for cause. CFPB directors serve five-year terms.

"The United States previously informed this court that it has also concluded the statutory restriction on the president's authority to remove the director violates the Constitution's separation of powers, and that the question would warrant this court's review in an appropriate case," Justice Department lawyers wrote in the new Supreme Court filing. "The director of the bureau has since reached the same conclusion. This case presents a suitable vehicle for the court's review of the question. The government thus agrees with petitioner that certiorari is warranted."

The Supreme Court would likely appoint a lawyer to argue in defense of the Ninth Circuit's ruling, if the justices agree to hear the case this term. The case would mark the latest instance of a Trump-era agency leader switching sides at the high court. In August, the Justice Department disavowed its earlier defense of a federal court's job-bias ruling, taking a position against the U.S. Equal Employment Opportunity Commission.

The Trump Justice Department's position in the Seila Law case was not a surprise. Main Justice had earlier expressed its disdain for the consumer bureau's structure in a case at the Supreme Court.

But the government, in that earlier case, did not ask the justices to resolve the dispute. Justice Brett Kavanaugh, a critic of the single-director scheme at the CFPB, would have been forced to sit on the sidelines in that case, based on his earlier involvement in the dispute as a presiding judge on the U.S. Court of Appeals for the D.C. Circuit.

Kavanaugh Justice Brett Kavanaugh, U.S. Supreme Court (Photo: Diego M. Radzinschi/ALM)

Kavanaugh's criticism of the consumer bureau's single-structure made an appearance in Tuesday's new court filing at the Supreme Court. The Justice Department quoted from Kavanaugh's writing in the D.C. Circuit case PHH Corp. v. CFPB. Kavanaugh was in the dissent in the D.C. Circuit ruling, which upheld the consumer agency's structure was lawful.

"Indeed, other than the president, the director of the CFPB is the single most powerful official in the entire United States government, at least when measured in terms of unilateral power," Kavanaugh wrote in the PHH Corp. case. He has called the power of the CFPB director "massive" and "unchecked."

Justice Department lawyers argued in their filing that a single-director agency "presents a greater risk than a multi-member independent commission of taking actions or adopting policies inconsistent with the president's executive policy." The government argued that "a single director can decisively implement his own views and exercise discretion without those structural constraints."

The Ninth Circuit panel, led by Judge Paul Watford, said Congress intentionally set up the consumer bureau to be independent. "Like the FTC, the CFPB exercises quasi-legislative and quasi-judicial powers, and Congress could therefore seek to ensure that the agency discharges those responsibilities independently of the president's will," Watford said.

The Seila Law case has attracted substantial friend-of-the-court attention from business advocates. The U.S. Chamber of Commerce, represented by Andrew Pincus of Mayer Brown, said the Supreme Court should resolve the constitutionality of the consumer bureau's structure.

"The current uncertainty regarding the legality of the Bureau's structure means that every act that the bureau takes—whether promulgating rules, issuing subpoenas, or imposing sanctions—is potentially invalid," Pincus wrote.

 

Read the Justice Department's new brief below:

 

 

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