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The Debate Over the Constitutionality of the CFPB

Dec 10, 2019 by Brian Arnesen

In the past few months, the constitutionality of the Consumer Financial Protection Bureau (CFPB) has been hotly debated and has grabbed many industry headlines. While compliance professionals tend to be more realistic about the CFPB, there are always a minority of vocal individuals who cling to the hope that compliance requirements and reporting will cease to exist. The current concern revolves around the inability to remove the standing director unless just cause, described as “inefficiency, neglect of duty, or malfeasance in office,” is present. While some agree that this is a just and fair way of conducting this governmental entity, others feel that it neglects the current checks and balances of our executive branch.

The debate over the CFPB’s structure has raged almost from the moment the Bureau was passed into law following the financial crisis of 2007 and over the last decade has become a partisan issue. The current debate picked back up when a California law firm stated that they were not required to respond to a CFPB civil investigative demand because of the constitutional question. The case has slowly made its way up the court system, and as of last month, the Supreme Court has agreed to add it to their docket of cases for the upcoming term.

Upon agreeing to take the case, the high court identified a direction in which they would like to take the proceedings. The parties were asked to discuss whether a provision in the Dodd-Frank Act, the act which created the CFPB, stating that the director would stay in their position unless the previously mentioned stipulations occurred, is unconstitutional. Some feel that it is because the Dodd-Frank Act overstepped the president’s authority by creating a single-director structure, giving too much power to the head of the Bureau.  

One potential result is that lawmakers will attempt to remove the individual clause itself instead of overturning the entire act. Some may hope that a change like this will result in the disappearance of the CFPB, but many legal scholars have stated that there is a severability clause within the Dodd-Frank Act ensuring that a result along those lines will not happen. The severability clause states that if any provision of the Act is held to be unconstitutional, the remainder of the Act is not affected and thereby will continue to be upheld in the court of law.

The debate over the director’s scope of powers is only one in a long-running tug of war over the focus, powers and oversight of the CFPB. Regardless of how the Supreme Court rules, this struggle will continue. While many have begun to speculate possible outcomes on both sides, the CFPB will continue to exist and will continue to provide us with plenty of changes to look forward to.