By Lawrence Hurley and Andrew Chung
WASHINGTON (Reuters) – Conservative U.S. Supreme Court justices on Tuesday appeared sympathetic to a challenge backed by President Donald Trump’s administration to the structure of a federal agency assigned to protect consumers in the financial sector.
The court, which has a 5-4 conservative majority, heard arguments involving the Consumer Financial Protection Bureau (CFPB) in an appeal by a California-based law firm investigated by the agency. Trump and his fellow Republicans have sought to undermine the CFPB, created by Congress under his Democratic predecessor Barack Obama in 2011 following the financial crisis.
The legal fight focused on whether the agency’s director, a presidential appointee who serves a five-year term, has too much power because the president has only limited authority to remove that individual. The law firm has argued that this CFPB 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.
While the conservative justices signaled sympathy toward the challengers, the court seemed conflicted over how to resolve the case. Liberal and conservative justices raised questions about the possible implications for other agencies and even the president’s ability to remove members of his own Cabinet.
If the court were to issue a broad ruling giving the president more powers it could affect agencies like the U.S. Federal Reserve and Federal Communications Commission, a concern raised by liberal Justice Stephen Breyer.
“What about the Fed? What about the FCC?” Breyer asked.
The three other liberal justices also appeared supportive of the agency’s current structure.
Chief Justice John Roberts, who could be the pivotal vote, said at one point that “we might want to scrutinize a little bit” how much of a limitation there was on presidential power before taking the drastic step of striking down a statute. Such a ruling would give the president more leeway to fire an agency director but would stop short of invalidating the agency itself.
Roberts said it would be the “worst of all possible worlds” if the justices create a situation in which a president’s attempt to fire a director ends up contested in court. Roberts also questioned whether the CFPB has more power than other U.S. agencies because it receives guaranteed funding from the Fed and does not need congressional appropriations.
“Does the independence of the agency from the budgetary process further weaken the democratic accountability through the president?” Roberts asked.
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.
Kathy Kraninger, named by Trump to head the agency, took office in 2018 over the objections of Democrats and consumer advocates.
AN IRONIC TWIST
Conservative Justice Brett Kavanaugh is already on the record as to how he would resolve the case. Before Trump appointed him to the Supreme Court in 2018, Kavanaugh dissented when the appeals court on which he then sat upheld the agency’s structure.
Kavanaugh appeared on Tuesday not to have changed course, calling it “troubling” that whoever wins the 2020 presidential election – Trump is seeking re-election on Nov. 3 – would not be able to appoint a CFPB director until Kraninger’s term ends in 2023.
“The next president might have a completely different conception of consumer financial regulatory issues yet will be able to do nothing about it,” Kavanaugh said.
Kavanaugh’s question underscored an irony: if Trump loses his re-election bid, a ruling in his favor in this case would make it easier for his successor to oust the current director who he appointed and install a new CFPB leader.
Law firm Seila Law LLC, based in California’s Orange County, has argued that the entire agency should be struck down. The law firm lost in lower courts and appealed to the Supreme Court.
The challenge was brought by Seila, which specializes in resolving consumer debt issues, in response to a 2017 CFPB request for information and documents during an investigation into whether the firm had violated federal consumer financial law.
The San Francisco-based 9th U.S. Circuit Court of Appeals ruled last year that the CFPB’s structure is constitutional.
Trump’s administration and the current CFPB leadership agreed with the challengers in the case. The Democratic-led House of Representatives intervened in the case in defense of the agency.
The ruling, due by the end of June, is likely to affect a similar challenge to the Federal Housing Finance Agency, also led by a single director.
(Reporting by Lawrence Hurley; Editing by Will Dunham)