October 18, 2019 / 7:02 PM / 24 days ago

Supreme Court takes up challenge to consumer protection agency

WASHINGTON (Reuters) - The U.S. Supreme Court on Friday agreed to hear a challenge backed by President Donald Trump’s administration to the structure of a federal agency assigned to protect consumers in the financial sector that could undermine its independence from presidential interference.

FILE PHOTO: The exterior of the U.S. Supreme Court in Washington, U.S., as seen on September 16, 2019. REUTERS/Sarah Silbiger/File Photo

The nine justices will hear an appeal involving the Consumer Financial Protection Bureau brought by a law firm that had been investigated by the agency, arguing that its structure infringes on presidential powers as laid out in the U.S. Constitution.

Trump and his fellow Republicans have sought to undermine the agency, created under his Democratic predecessor Barack Obama in 2011 in the aftermath of the financial crisis.

Orange County, California-based law firm Seila Law LLC argues in the case that the entire agency should be struck down, but the most likely outcome - and the one urged by the Trump administration - is that the Supreme Court rule that the president can remove the CFPB’s director at any time. The law firm lost in lower courts and appealed to the Supreme Court.

The legal fight focuses on whether the single director of the agency, who is appointed by the president to a five-year term, has too much power because the president has limited authority to remove that individual from office.

Seila Law argued that the structure violates the U.S. Constitution’s separation of powers provisions that vest executive authority with the president and limit the power of Congress to encroach in that area.

Trump’s appointee to head the agency, Kathy Kraninger, took office in December 2018 over the objections of Democrats and consumer advocates.

Under the 2010 Dodd-Frank Wall Street reform law that established the agency, the president can terminate a director only for “inefficiency, neglect of duty or malfeasance in office.” Lawmakers wanted the agency to be independent from political interference.

The challenge, one of several targeting the agency, was brought by Seila, which specializes in resolving consumer debt issues, in response to a February 2017 request from the CFPB demanding information and documents as part of an investigation into whether the firm had violated federal consumer financial law.

The law firm lost its claim in both the district court and on appeal to the San Francisco-based 9th U.S. Circuit Court of Appeals, which ruled in May 2019 that the structure of the agency is constitutional.

The Trump administration and the CFPB itself, reversing course on the position taken by the Obama administration, have said they agree with the challengers. The Supreme Court will likely have to appoint an outside lawyer to argue that the existing structure is constitutional.

The CFPB was established in 2011 to crack down on predatory financial practices after the 2007-2009 financial crisis.

U.S. Senator Elizabeth Warren, a contender for the Democratic nomination to run against Trump in the November 2020 election, played a key role in setting up the agency before she was elected to the Senate from Massachusetts.

Ever since the CFPB was established, Republicans and the financial industry have sought to undercut its authority, objecting to its powers over a wide array of financial products and its structure.

However, if Trump loses his re-election bid, a ruling in his favor in this case would make it easier for his successor - potentially Warren - to oust the current director and install a new leader for the agency.

The Supreme Court, which has a 5-4 conservative majority, will hear arguments and issue a ruling in its current term, which runs until the end of June.

One of the justices, conservative Brett Kavanaugh, is already on the record as to how he would resolve the case. Before he was appointed to the Supreme Court by Trump, Kavanaugh participated in another case as a federal appeals court judge. He dissented when that court in 2018 upheld the agency’s structure. His proposed solution was the same as the proposal made by the Trump administration.

That would be in line with how the Supreme Court resolved a challenge to another, more obscure, government entity called the Public Company Accounting Oversight Board. The court, in a decision authored by Chief Justice John Roberts, ruled on a 5-4 vote in 2010 that the board was unconstitutionally structured because the president did not have sufficient authority to remove board members.

A similar legal challenge to the structure of the Federal Housing Finance Agency is also heading to the Supreme Court.

Reporting by Lawrence Hurley; editing by Will Dunham and Grant McCool

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