U.S. Supreme Court to consider constitutionality of major financial regulator

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Next year could bring big changes to the structure of the Consumer Financial Protection Bureau, a key federal regulatory agency.

That’s because the Supreme Court has agreed to hear arguments on whether the leadership structure of the CFPB is unconstitutional. At issue is whether the president should be able to fire the CFPB director at will.

The CFPB, established under the Obama administration, aims to “protect consumers from unfair, deceptive or abusive practices.” To help fulfill that mission, the CFPB is headed by a director appointed by the president for a five-year term. The director of the agency, which was designed to operate independently of any administration, can’t easily be fired by the president.

If the Supreme Court rules that the CFPB’s structure is unconstitutional, the president could gain more power over government agencies. A structural change to the agency could also affect how it regulates financial institutions and protects consumers. Read on to learn more.

Want to know more?

What’s the CFPB?

The CFPB was established as a federal agency in 2010 as part of financial reforms initiated after the last recession. The idea behind the agency was to help protect consumers from predatory lending practices and to help regulate consumer financial products. The CFPB’s work also includes taking consumer complaints and enhancing financial education.

Over the years, the CFPB has cracked down on student loan providers, for-profit colleges and payday lenders. Other key actions included setting new mortgage lending rules and toughening standards against debt collectors.

Why is this case important?

This Supreme Court case — Seila Law LLC v. Consumer Financial Protection Bureau — is important for two big reasons: It could change how much power any president has over independent federal agencies, and it could change how the CFPB operates.

In what The Wall Street Journal calls an “unusual imbalance in the litigation,” the U.S. Justice Department filed a brief in September requesting that the Supreme Court hear the case. This means the high court might have to appoint outside counsel to argue for the CFPB.

CFPB Director Kathy Kraninger has said she supports the Trump administration’s position that the CFPB’s structure is unconstitutional.

A Supreme Court ruling that would allow the president to fire the CFPB director at will and to appoint a replacement could contradict the original intention of the CFPB’s creators to establish an agency independent shielded from political influence.

What’s next?

For now, the CFPB is proceeding as usual. The Supreme Court is expected to hear arguments early next year, with a decision around June 2020.

You can follow updates to the case on the Supreme Court’s website.