The U.S. Supreme Court this week ruled the president can fire the head of the Consumer Financial Protection Bureau (CFPB) at will, but it otherwise left the bureau intact. The outcome could have been much different.
The ruling comes as a victory for the Trump administration, which has long argued the CFPB—a watchdog agency created under the Obama administration to guard against abuses in the banking and financial services industries—is too powerful. While the court said restrictions on when the president can remove the director were unconstitutional, it found the independent agency itself should continue to operate.
Here’s what you need to know.
How the CFPB Landed in the Supreme Court
In 2017, Seila Law, a California-based law firm under investigation by the CFPB for allegedly charging consumers illegal upfront fees for debt-relief services, refused to turn over material the CFPB requested, arguing that the structure of the agency was unconstitutional. The case wound its way to the Supreme Court. This week, the court ruled the CFPB’s leadership by one single director, who could only be removed for certain wrongdoings, was unconstitutional.
In its ruling, the Supreme Court determined the head of the CFPB can be fired at will by the president. Until now, the head of the CFPB could only be removed for “inefficiency, neglect, or malfeasance.”
“The agency may … continue to operate, but its Director, in light of our decision, must be removable by the President at will,” Chief Justice John Roberts wrote in his majority decision.
The CFPB, unlike other independent agencies, has a single director who is nominated by the president and then confirmed by Congress, and serves a five-year term. There has long been debate over whether the CFPB director therefore has too much power and goes against the constitution.
Trump Wages Battle Against the CFPB
Trump has sought to weaken independent regulatory agencies since coming into office. The administration first took aim at the bureau in 2017 when it appointed Mick Mulvaney—a fierce critic of the agency when he served in Congress—as interim director after Richard Cordray resigned under what was believed to be political pressure from the Trump administration.
As interim director, Mulvaney called off a four-year investigation into World Acceptance, a lender targeting subprime borrowers. He also sided with lenders in a lawsuit against the CFPB to block new industry regulations, and then fired the agency’s 25-member advisory board after 11 of its members publicly criticized him in a news conference. Mulvaney’s actions were enough to push former student loan ombudsman Seth Frotman, who served as a watchdog for student loan servicing companies, to resign.
“Unfortunately, under your leadership, the bureau has abandoned the very consumers it is tasked by Congress with protecting,” Frotman wrote in his resignation letter. “Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America.”
Today, the CFPB is directed by Kathy Kraninger. She was nominated by the president and approved by the Senate in a 50-49 vote in December 2018.
Kraninger previously served as the associate director of general government at the Office of Management and Budget and has been criticized for lacking knowledge in consumer finance. Those in support of Kraninger argue that her ability to lead and manage large government agencies make her credible as a director of the CFPB.
Not Familiar With the CFPB? Here’s Why It’s Important
The CFPB was established by Congress and former President Barack Obama in the wake of the 2008 financial crisis. Created under the 2010 Dodd-Frank Act, the bureau serves to protect consumers from “unfair, deceptive, or abusive practices.”
The bureau is also empowered to take action against companies that break the law. In 2017, the bureau returned nearly $12 billion to 29 million consumers who were wronged by companies. The Consumer Federation of America (CFA) finds significantly less monetary relief has been going to consumers under the Trump administration, compared to the Obama administration.
Most recently, the bureau has released guidance on navigating assistance during the COVID-19 pandemic. The bureau’s centralized resource page includes guides to mortgage relief, student loan assistance, avoiding scams and managing finances during the pandemic. Not only does the bureau focus on taking action over bad actors, but it works to educate and empower consumers about their personal finances.
Though the CFPB has endured turbulent times in recent history, in essence it’s an important and valuable agency that protects American consumers. U.S. Sen. Elizabeth Warren (D-MA), who first proposed a consumer protection agency to watch over predatory financial services practices in 2007, celebrated the agency’s survival in a series of tweets following the court’s ruling.