Seila Law LLC v. Consumer Financial Protection Bureau

In the wake of the 2008 fnancial crisis, Congress established the Consumer Financial Protection Bureau (CFPB), an independent regulatory agency tasked with ensuring that consumer debt products are safe and transparent. See Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), 124 Stat. 1376. Congress transferred the administration of 18 existing federal statutes to the CFPB, including the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and the Truth in Lending Act; and Congress enacted a new prohibition on unfair and deceptive practices in the consumer-fnance sector. 12 U. S. C. § 5536(a)(1)(B). In doing so, Congress gave the CFPB extensive rulemaking, enforcement, and adjudicatory powers, including the authority to conduct investigations, issue subpoenas and civil investigative demands, initiate administrative adjudications, prosecute civil actions in federal court, and issue binding decisions in administrative proceedings. The CFPB may seek restitution, disgorgement, injunctive relief, and signifcant civil penalties for violations of the 19 federal statutes under its purview. So far, the agency has obtained over $11 billion in relief for more than 25 million consumers.

Unlike traditional independent agencies headed by multimember boards or commissions, the CFPB is led by a single Director, § 5491(b)(1), who is appointed by the President with the advice and consent of the Senate, § 5491(b)(2), for a fve-year term, during which the President may remove the Director only for “ineffciency, neglect of duty, or malfeasance in offce,” §§ 5491(c)(1), (3). The CFPB receives its funding outside the annual appropriations process from the Federal Reserve, which is itself funded outside the appropriations process through bank assessments.

In 2017, the CFPB issued a civil investigative demand to Seila Law LLC, a California-based law frm that provides debt-related legal services to clients. The civil investigative demand (essentially a subpoena) sought information and documents related to the frm's business practices. Seila Law asked the CFPB to set aside the demand on the ground that the agency's leadership by a single Director removable only for cause violated the separation of powers. When the CFPB declined, Seila Law refused to comply with the demand, and the CFPB fled a petition to enforce the demand in District Court. Seila Law renewed its claim that the CFPB's structure violated the separation of powers, but the District Court disagreed and ordered Seila Law to comply with the demand. The Ninth Circuit affrmed, concluding that Seila Law's challenge was foreclosed by Humphrey's Executor v. United States, 295 U. S. 602, and Morrison v. Olson, 487 U. S. 654.

Held: The judgment is vacated and remanded.

923 F. 3d 680, vacated and remanded.

The Chief Justice delivered the opinion of the Court with respect to Parts I, II, and III, concluding:

1. Appointed amicus raises three threshold arguments for why this Court may not or should not reach the merits of petitioner's constitutional challenge, but they are unavailing. Pp. 209–213.

2. The CFPB's leadership by a single individual removable only for ineffciency, neglect, or malfeasance violates the separation of powers. Pp. 213–232.

(a) Article II vests the entire “executive Power” in the President alone, but the Constitution presumes that lesser executive offcers will assist the President in discharging his duties. The President's executive power generally includes the power to supervise—and, if necessary, remove—those who exercise the President's authority on his behalf. The President's removal power has long been confrmed by history and precedent. It was recognized by the First Congress in 1789, confrmed by this Court in Myers v. United States, 272 U. S. 52, and reiterated in Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U. S. 477. In Free Enterprise Fund, the Court recognized that it had previously upheld certain congressional limits on the President's removal power. But the Court declined to extend those limits to “a new situation not yet encountered by the Court.” 561 U. S., at 483. Free Enterprise Fund left in place only two exceptions to the President's unrestricted removal power. First, Humphrey's Executor permitted Congress to give for-cause removal protection to a multimember body of experts who were balanced along partisan lines, appointed to staggered terms, performed only “quasi-legislative” and “quasi-judicial functions,” and were said not to exercise any executive power. Second, Morrison approved for-cause removal protection for an inferior offcer—the independent counsel—who had limited duties and no policymaking or administrative authority. Pp. 213–218.

(b) Neither Humphrey's Executor nor Morrison resolves whether the CFPB Director's insulation from removal is constitutional. The New Deal-era FTC upheld in Humphrey's Executor bears little resemblance to the CFPB. Unlike the multiple Commissioners of the FTC, who were balanced along partisan lines and served staggered terms to ensure the accumulation of institutional knowledge, the CFPB Director serves a fve-year term that guarantees abrupt shifts in leadership and the loss of agency expertise. In addition, the Director cannot be dismissed as a mere legislative or judicial aid. Rather, the Director possesses signifcant administrative and enforcement authority, including the power to seek daunting monetary penalties against private parties in federal court—a quintessentially executive power not considered in Humphrey's Executor.

The logic of Morrison also does not apply. The independent counsel approved in Morrison was an inferior offcer who lacked policymaking or administrative authority and exercised narrow authority to initiate criminal investigations and prosecutions of governmental actors identifed by others. By contrast, the CFPB Director is a principal offcer whose duties are far from limited. The Director promulgates binding rules feshing out 19 consumer-protection statutes that cover everything from credit cards and car payments to mortgages and student loans. And the Director brings the coercive power of the state to bear on millions of private citizens and businesses, imposing potentially billiondollar penalties through administrative adjudications and civil actions.

The question here is therefore whether to extend the Humphrey's Executor and Morrison exceptions to a “new situation.” Free Enterprise Fund, 561 U. S., at 433. Pp. 218–220.

(c) The Court declines to extend these precedents to an independent agency led by a single Director and vested with signifcant executive power. Pp. 220–232.

(1) The CFPB's structure has no foothold in history or tradition. Congress has provided removal protection to principal offcers who alone wield power in only four isolated instances: the Comptroller of the Currency (for a one-year period during the Civil War); the Offce of Special Counsel; the Administrator of the Social Security Administration; and the Director of the Federal Housing Finance Agency. Aside from the one-year blip for the Comptroller of the Currency, these examples are modern and contested; and they do not involve regulatory or enforcement authority comparable to that exercised by the CFPB. Pp. 220–222.

(2) The CFPB's single-Director confguration is also incompatible with the structure of the Constitution, which—with the sole exception of the Presidency—scrupulously avoids concentrating power in the hands of any single individual. The Framers' constitutional strategy is straightforward: divide power everywhere except for the Presidency, and render the President directly accountable to the people through regular elections. In that scheme, individual executive offcials may wield signifcant authority, but that authority remains subject to the ongoing supervision and control of the elected President. The CFPB's single-Director structure contravenes this carefully calibrated system by vesting signifcant governmental power in the hands of a single individual who is neither elected by the people nor meaningfully controlled (through the threat of removal) by someone who is. The Director may unilaterally, without meaningful supervision, issue fnal regulations, oversee adjudications, set enforcement priorities, initiate prosecutions, and determine what penalties to impose on private parties. And the Director may do so without even having to rely on Congress for appropriations. While the CFPB's independent, single-Director structure is suffcient to render the agency unconstitutional, the Director's fve-year term and receipt of funds outside the appropriations process heighten the concern that the agency will “slip from the Executive's control, and thus from that of the people.” Free Enterprise Fund, 561 U. S., at 499. Pp. 222–226.

(3) Amicus raises three principal arguments in the agency's defense. First, amicus challenges the textual basis for the President's removal power and highlights statements from individual Framers expressing divergent views on the subject. This Court's precedents, however, make clear that the President's removal power derives from the “executive Power” vested exclusively in the President by Article II. And this Court has already discounted the founding-era statements cited by amicus in light of their context. Second, amicus claims that Humphrey's Executor and Morrison establish a general rule that Congress may freely constrain the President's removal power, with only two limited exceptions not applicable here. But text, frst principles, the First Congress's decision in 1789, Myers, and Free Enterprise Fund all establish that the President's removal power is the rule, not the exception. Finally, amicus submits that this Court can cure any constitutional defect in the CFPB's structure by interpreting the language “ineffciency, neglect of duty, or malfeasance in offce,” 12 U. S. C. § 5491(c)(3), to reserve substantial discretion to the President. But Humphrey's Executor implicitly rejected this position, and the CFPB's defenders have not advanced any workable standard derived from the statutory text. Nor have they explained how a lenient removal standard can be squared with the Dodd-Frank Act as a whole, which makes plain that the CFPB is an “independent bureau.” § 5491(a).

The dissent advances several additional arguments in the agency's defense, but they have already been expressly considered and rejected by the Court in Free Enterprise Fund. Pp. 226–232.

The Chief Justice, joined by Justice Alito and Justice Kavanaugh, concluded in Part IV that the Director's removal protection is severable from the other provisions of the Dodd-Frank Act that establish the CFPB and defne its authority. Pp. 232–238.