The Irony for CFPB’s Opponents

When the Consumer Financial Protection Bureau was created by the Dodd-Frank Act, it was designed to be free from political shifts resulting from changes in Presidential administrations.

The bureau was to be led by a director appointed for a five-year term who could only be removed for cause. Critics of the CFPB structure argued this intentional freedom from Presidential oversight was unconstitutional since it established an agency outside the direct supervision of the chief executive – making it an unaccountable separate arm of government.

In June 2020, the U.S. Supreme Court agreed with the CFPB’s opponents. It ruled that the provision of the Dodd-Frank Act that allows the President to remove the CFPB director only for cause is unconstitutional because it places too much executive authority in a single individual other than the President. The President must be in a position to remove the CFPB director at will. Rather than declare the entire CFPB structure unconstitutional, the Supreme Court found that the CFPB could continue, provided that the unconstitutional removal provision is severed.

One cannot overlook the potential irony of this ruling because of the time it has taken the challenge to work its way through the court system to the Supreme Court. The opponents were intent on challenging the Bureau because of the policies of its first confirmed director, contending they were damaging to the financial system. They wanted President Trump to remove him at will.

However, when the director stepped down, he was replaced first by an acting director appointed by President Trump and then by a director with a five-year term appointed by President Trump and confirmed by the Senate, Kathy Kraninger. Kraninger’s term was originally set to run through December 2023, meaning even if President Trump is defeated in November 2020, there would be a less activist director of the CFPB in place for an additional three years.However, opponents of the CFPB may find themselves bitten by the Supreme Court decision. First, the existence of the CFPB, once the director removal issue is resolved, has been found to be constitutional. Second, because of the requirement to change the removal process to make it at the will of the President, if there is a change in the President, there will be a change in the CFPB director.

Now that the Bureau is led by a director whose policies are more acceptable to CFPB opponents, her term could be cut short if there is a change in the Presidential administration in the next election.