Supreme Court Declines to Hear Challenge to CFPB Constitutionality
The split between courts on the issue of the CFPB’s constitutionality remains unresolved as the Supreme Court refuses to take the case.
The U.S. Supreme Court on Monday declined to hear a case challenging the constitutionality of the CFPB’s structure.
As always, the court gave no reason for refusing to take the case.
Courts have been divided over the issue, with the federal Appeals Court for the District of Columbia ruling that the makeup of the bureau is constitutional. However, the Fifth Circuit Court of Appeals has ruled that the FHFA’s structure is unconstitutional; that agency has the same structure as the CFPB.
For now, the split between the circuits remains unresolved.
Credit union trade groups have said the CFPB should be governed by a commission and that the agency should be subject to the annual appropriations process.
The State National Bank of Big Spring, Texas and several conservative groups had asked the high court to accept its challenge of the single-director structure of the agency.
The Trump Administration argued that while it agrees the structure of the agency is unconstitutional and should be considered by the Supreme Court, this particular case is a poor one to consider.
The bank made the now familiar argument that in creating the CFPB as part of Dodd-Frank, Congress gave the director of the agency unprecedented power. He can only be removed by the president for cause and the agency is not subject to the annual appropriations process.
Instead, the agency draws its funds from the Federal Reserve, which is the reason why the agency continues to operate through the partial government shutdown.
“In the history of the United States, no individual has ever wielded such expansive executive enforcement authority over an entire sector of private economic activity, devoid of the checks and balances the Constitution’s separation of powers requires,” the bank said in its petition asking the court to accept the case.
In its response, the Justice Department agreed with the constitutionality issue.
“On the merits, the United States agrees with petitioners that the statutory restriction on the president’s authority to remove the director violates the constitutional separation of powers,” DoJ officials said.
But this case, they argued, has several problems that make them a poor group to decide such a thorny issue.
Justice officials said that Supreme Court Justice Brett Kavanaugh would be unlikely to be able to hear the case since he wrote a ruling when he served on the D.C. Circuit Court of Appeals that found the CFPB’s structure constitutional.
“Particularly for a question of this magnitude, the Court may wish to wait for a vehicle in which all nine Justices are likely to participate,” the Justice Department said.
Strategically, the Justice Department would want Kavanaugh to hear a CFPB case, since he is on record as ruling the agency is unconstitutional.
The Justice Department also said the bank and interest groups are not regulated by the CFPB.
The bank has less than $10 billion in assets, making the Office of the Comptroller of the Currency the institution’s regulator.
And while the CFPB has issued rules governing remittance transfers, the agency has exempted financial institutions that complete fewer than 100 remittances a year. The Justice officials noted that the bank issues far fewer than 100 remittances each year.
An attorney for the Competitive Enterprise Institute, one of the groups supporting the bank, said he was disappointed by the ruling but added he hoped the court eventually will rule on the issue.
“There are other pending lawsuits that raise these same issues, and we are hopeful the court will have another opportunity to review them,” CEI General Counsel Sam Kazman said.
Jim Purcell, chairman of the board and CEO of the bank, said the CFPB poses a big threat to small banks.
“Big banks might be able to cope with CFPB rules, but for us and banks like us, the costs and red tape spun out by this agency could become a slow death sentence,” he said.