The Supreme Court has declined to hear a lawsuit that challenged the constitutionality of the Consumer Financial Protection Bureau.
The State National Bank of Big Spring, Texas, the Competitive Enterprise Institute, and the 60 Plus Association were petitioners in the case, State National Bank of Big Spring v. Mnuchin. The lawsuit was on appeal from the U.S. Court of Appeals for the District of Columbia Circuit.
“We are disappointed by the Supreme Court’s decision to turn down the case,” Sam Kazman, CEI’s general counsel, said on Monday. “The case raised constitutional issues of major importance regarding the CFPB, an agency that wields massive power over the economic activities of the public and sets a dangerous precedent for unaccountable federal bureaucracy. But there are other pending lawsuits that raise these same issues, and we are hopeful the court will have another opportunity to review them.”
“State National Bank brought this case because we are concerned about the threat that CFPB poses to us and our customers,” said Jim Purcell, chairman and CEO of State National Bank of Big Spring. “Big banks might be able to cope with CFPB rules, but for us and banks like us, the costs and red tape spun out by this agency could become a slow death sentence. We are disappointed in the Supreme Court's decision not to take our case, but we are also hopeful that these constitutional issues will still be examined in some future lawsuit.”
The petition pointed to what were alleged to be constitutional flaws in the CFPB’s structure: it is led by a single director that the president cannot remove at will; and Congress has no control over the bureau’s funding. Because of these issued, critics say, the CFPB operates with practically no oversight from either the President or Congress. “The CFPB’s structure should be invalidated, rather than being allowed to serve as a blueprint for future regulatory agencies that are immune to the checks and balances required by the Constitution,” a CEI statement says.
In 2015, the CFPB fined New Jersey mortgage services company PHH Corp. for alleged violations of the Real Estate Settlement Procedures Act. In a lawsuit challenging the $109 million fine, PHH asserted that the agency had neither the regulatory jurisdiction nor constitutional authority to impose the penalty.
PHH scored a victory of sorts in October 2016 when the 2-1 ruling by the U.S. Court of Appeals for the D.C. Circuit found that the CFPB, as currently composed, is unconstitutional.
The Court, at that time, sided, in large part, with PHH’s assertion that the CFPB’s structure violates Article II of the Constitution because it operates as an independent agency headed by a single director. To constitutionally comply, it argued, the agency’s director must be removable at will by the President, meaning that the CFPB would operate as a traditional executive agency; or if structured as an independent agency, it must be structured as a multi-member commission.
The majority opinion, in a fairly scathing rebuke written by Judge Brett Kavanaugh, said “the single-director structure of the CFPB represents a gross departure from settled historical practice.”
The opinion stopped short of calling for an immediate dismantling of the agency. Instead, the Bureau was directed to find a remedy to its constitutional woes.
For its part, the CFPB requested, and was granted, an en banc rehearing before the full bench of the appellate court’s judges. In January 2018, that 6-3 ruling declared that the agency’s structure is indeed constitutional and its director can only be removed by the President for inefficiency, neglect of duty, or malfeasance in office.
Writing for the majority, Judge Cornelia T.L. Pillard argued that the CFPB’s structure was a product of its necessity, created in the aftermath of a global financial meltdown. “Congress’s solution was not so much to write new consumer protection laws, but to collect under one roof existing statutes and regulations and to give them a chance to work,” she wrote. “Congress determined that, to prevent problems that had handicapped past regulators, the new agency needed a degree of independence. Congress gave the CFPB a single Director protected against removal by the President without cause.”
That legal opinion will stand now, barring separate legal challenges, that the Supreme Court has decided not to hear one last appeal.