The Supreme Court and the CFPB

Last week the Supreme Court has agreed to rule on the constitutionality of the CFPB’s structure, created in 2010 under the Dodd Frank Act. We feel that it is important that our brokers follow this case, but also realize that the Supreme Court is looking at the structure of the Consumer Finance Protection Bureau, not whether the Bureau is “legal.”

The Supreme Court agreed to hear a challenge to the constitutionality of statutory restrictions on the president’s ability to remove the director of the CFPB from office. Can any president remove the head of the CFPB without cause? If the justices agree that the restrictions violate the separation of powers (the idea that the Constitution divides the different functions of government among the executive, judicial and legislative branches) their ruling could potentially unravel all the CFPB’s decisions in the nine years since its creation.

The law firm that filed the complaint argues that the structure of the CFPB is unconstitutional because the bureau is headed by a single director, who has significant power but can only be removed by the president “for cause” – that is, for a very good reason. Interesting, the CFPB agreed. In a brief filed last month, the CFPB agreed with the law firm that the court should grant review and hold that the restriction on removal of the agency’s director “impermissibly infringes the separation of powers fundamental to our constitutional structure.”

And there is another question to be decided. If the court agrees that the provision limiting the president’s ability to remove the CFPB director is unconstitutional, can that provision be separated from the rest of the Dodd-Frank Act? The CFPB argued that it can be, which would give the court a way to strike down the specific provision without invalidating the entire CFPB, but now the Supreme Court will decide.

The justices will not hear oral argument until early next year, and no one expects a decision until next summer. Before Orion’s brokers think that compliance, quality control, and adhering to guidelines are going away, they aren’t. Orion takes these topics very seriously. The case focuses on the structure of the CFPB, and the ability of the President to remove its Director, not on it role in protecting the consumer.

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