EPIC - Seila Law v. Consumer Financial Protection Bureau

Seila Law v. Consumer Financial Protection Bureau

Whether the structure of the Consumer Financial Protection Bureau, which has a single director removable by the President only for cause, unconstitutionally infringes on executive power.

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Summary

This case concerns Congress's power to establish single director independent agencies, such as the Consumer Financial Protection Bureau and a proposed federal Data Protection Agency. Independent agencies deal with highly technical regulatory matters that Congress decided should be insulated from executive branch politics. The Supreme Court has found that independent agencies headed by commissions are constitutional, but has not directly considered whether single director independent agencies are as well.

Petitioner Seila Law is a law firm that challenged the constitutionality of the CFPB after the agency sought to investigate the firm's consumer debt practice. The CFPB defended the agency's constitutionality in both the district and appellate courts, and prevailed. Seila Law petitioned the U.S. Supreme Court for review, and, for the first time, the CFPB announced it would not defend the constitutionality of the removal provision. The Supreme Court granted cert, and appointed former Solicitor General Paul Clement to defend the decision below.

Background

Legal Background

An independent agency is an executive branch agency created by Congress through a statutory grant of authority that defines the agency's goals, powers, and structure. Congress has periodically created an independent agency to address a specialized field of law in an expert, non-partisan fashion. Thus, in an attempt to make the agencies "free from political domination or control," Congress chose to limit the President's ability to remove the leaders of independent agencies. While the President can fire Cabinet agency heads at will, independent agency heads can only be fired "for cause"—that is, "inefficiency, neglect of duty, or malfeasance in office."

The Supreme Court has upheld the constitutionality of for cause removal. In a 1935 case, the Court found that for cause removal of members of the Federal Trade Commission was constitutional because the Commission was charged with legislative and judicial functions in addition to executive functions, and thus was, in effect, a quasi-judicial and quasi-legislative branch agency. In later cases, the Supreme Court assumed the constitutionality of other multimember commission agencies, such as the Securities and Exchange Commission.

In a 1988 case, the Supreme Court upheld Congress's power to restrict the President's ability to remove an independent counsel who unmistakably wielded significant executive power to "good cause"—an even higher standard than "for cause" at issue in the case of the CFPB. The Court found that the President's inability to remove the independent counsel at will did not interfere with the President's constitutional duties and, thus, did not infringe on his exercise of executive power. The Court concluded that controlling the independent counsel's exercise of discretion was not "so central to the function of the Executive Branch as to require as a matter of constitutional law that the counsel be terminable at will by the President." The Court observed as well that, even with the restriction on removal, the President retained "ample authority" to ensure that the independent counsel competently performed their duties.

Factual Background

Establishment of the Consumer Financial Protection Bureau

Congress create the CFPB in 2010 to consolidate enforcement of federal consumer financial laws into one agency. The CFPB creates rules implementing fiancial laws, investigates suspected wrongdoing, adjudicates enforcement, and files civil actions in federal courts.

The CFPB is led by a single director appointed by the President with the advice and consent of the Senate. The director serves a five year term that can be extended until a successor has been appointed and confirmed. The President can only remove the CFPB director "for cause"—that is, only for "inefficiency, neglect of duty, or malfeasance in office."

Proposed Data Protection Agency

On November 5, 2019, Representatives Anna Eshoo and Zoe Lofgren introduced the Online Privacy Act of 2019, H.R. 4978, which would create robust consumer privacy rights and establish a federal Data Protection Agency. The structure of the proposed Data Protection Agency is modeled on that of the CFPB: a single director appointed by the President with the advice and consent of the Senate, serving a five year term with potential for extension, and removable only for "inefficiency, neglect of duty, or malfeasance in office."

Almost every democratic country in the world has an independent federal data protection agency, with the competence, authority, and resources to help ensure the protection of personal data. At present in the United States, privacy law enforcement, as it exists at the federal level, is distributed among several agencies, such as the Federal Trade Commission and the Federal Communications Commission. The Federal Trade Commission in particular has been looked to as a pseudo privacy agency, but the FTC lacks the authority, competence, and political will to safeguard consumer privacy. Though the recent settlements with Facebook and Google impose record-setting fines, those fines are little compared to the companies' profits. Nor will the settlements require the companies to change their poor privacy practices. For these reasons, EPIC filed an amicus brief in the FTC-Facebook settlement case urging the court to reject the deal.

Many now believe that the failure to establish a data protection agency in the United States has contributed to the growing incidents of data breach and identity theft. Recent decisions of the Court of Justice of the European Union might also lead to the suspension of transborder data flows until the United States establishes a federal data protection agency.

CFPB Investigation of Seila Law

Seila Law is a law firm that serves clients trying to resolve consumer debt issues. The CFPB began an investigation into the firm, seeking records about the firm's consumer debt practice. The firm refused to comply with the demand for information, claiming, among other things, that the CFPB is unconstitutionally structured.

Procedural History

U.S. District Court for the District of Central California

The CFPB petitioned the district court to enforce its demand for documents. Seila Law argued that the demand was invalid because, among other things, the CFPB's single director removable by the President only for cause was an unconstitutional infringement on executive power.

The court sided with the CFPB. The court noted that the Supreme Court has found that independent agencies headed by a commission, composed of multiple members, are constitutional. Because no evidence establishes that a single director agency makes any meaningul difference in responsiveness or accountability to the President than a multimember commission, the single director independent agency does not interfere with the President's exercise of executive power nor his constitutional duty to take care that the laws are faithfully executed under Article II. The court also noted that no evidence establishes the "superiority" of either the multimember commission or single director model.

U.S. Court of Appeals for the Ninth Circuit

Seila Law appealed, but the Ninth Circuit affirmed. The court found that the CFPB, like the FTC, exercises not just executive powers but also legislative and judicial powers, which the Supreme Court has found warrant a certain level of independence from the President's control. Further, the court found that the substantial executive power wielded by the CFPB head does not require the President to be able to remove the director at-will because the Supreme Court upheld for-cause removal for Security and Exchange Commission members who exercise "siginificant executive power" and for an official exercising "the most significant forms of executive authority: the power to investigate and prosecute criminal wrongdoing." Nor did the court find dispositive that the CFPB has only one director, as the Supreme Court's opinion on the validity of the FTC did not appear to turn on the fact that the FTC is headed by five commissioners rather than one individual.

EPIC's Interest

EPIC has long advocated for a U.S. data protection agency. On November 5, 2019, Reps. Eshoo and Lofgren introduced the Online Privacy Act of 2019, H.R. 4978, which would establish a federal data protection agency. The structure of the proposed agency is the same as that of the CFPB: a single director appointed by the President with the advice and consent of the Senate, serving a five year term with potential for extension, and removable only for "inefficiency, neglect of duty, or malfeasance in office." EPIC reviewed the proposed legislation in its recent report, Grading on a Curve: Privacy Legislation in the 116th Congress (2019-2020).