The Ninth Circuit last week affirmed a district court’s ruling upholding the constitutionality of the structure of the Consumer Financial Protection Bureau (“CFPB”). The case stems from a CFPB investigation into whether Seila Law LLC, a firm that provides debt-relief and other services, violated the Telemarketing Sales Rule. Seila Law had refused to comply with a CID it received from the CFPB. The district court granted the CFPB’s petition for enforcement, and the Ninth Circuit rejected both of Seila Law’s challenges to the district court order.
First, the Ninth Circuit followed in the footsteps of PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018) in holding that the CFPB’s structure is constitutional. Seila Law had argued that the structure violates the separation of powers because the director of the CFPB has executive power but can only be removed by the president for cause. The Ninth Circuit acknowledged that the CFPB director does have “substantial executive power,” but it concluded that the structure is constitutional, based on Supreme Court precedent in Humphrey’s Executor v. United States, 295 U.S. 602 (1935), and Morrison v. Olson, 487 U.S. 654 (1988).
Humphrey’s Executor involved a separation of powers challenge to the Federal Trade Commission (“FTC”), which has commissioners who can only be removed for cause. The Supreme Court rejected the challenge to the agency’s structure because the agency exercises not just executive powers, but also quasi-judicial and quasi-legislative powers. The Supreme Court reasoned Congress was allowed to decide “’in creating quasi-legislative or quasi-judicial agencies, to require them to act in discharge of their duties independently of executive control.’” CFPB v. Seila Law LLC, No. 17-56324, 2019 U.S. App. LEXIS 13460, at *6 (9th Cir. May 6, 2019) (quoting Humphrey’s Executor, 295 U.S. at 629). Likewise, the Ninth Circuit noted that the CFPB exercises quasi-judicial and quasi-legislative functions, and it acts as a financial regulator. The Ninth Circuit found applicable Humphrey’s Executor holding that the for-cause removal clause “was a permissible means of ensuring that the FTC’s Commissioners would ‘maintain an attitude of independence’ from the President’s control.” Id. (quoting Humphrey’s Executor, 295 U.S. at 629).
The Ninth Circuit recognized that the CFPB has more executive power than the FTC did at the time of the Humphrey’s Executor decision, and it relied on Morrison to support its view that the current state of the FTC, which now has more expansive executive powers, “has not undermined the constitutionality of the FTC.” Seila Law, 2019 U.S. App. LEXIS 13460, at *7. The Court also reasoned that the fact the CFPB has one director and the FTC has five commissioners does not change its analysis because, “[a]s the PHH Corp. majority noted, if an agency’s leadership is protected by a for-cause removal restriction, the President can arguably exert more effective control over the agency if it is headed by a single individual rather than a multi-member body.” Id. at *9.
The Court concluded that Humphrey’s Executor and Morrison “indicate that the for-cause removal restriction protecting the CFPB’s Director does not ‘impede the President’s ability to perform his constitutional duty’ to ensure that the laws are faithfully executed.” Id. (citing Morrison, 487 U.S. at 691).
Separately, the Court rejected Seila Law’s argument that the CFPB did not have the statutory authority to issue the CID.
This ruling avoids a circuit split with the D.C. Circuit on the issue of the CFPB’s constitutionality. The same issue is on appeal before Second and Fifth Circuits.