Seila Law v. Consumer Financial Protection Bureau

12 U.S.C. § 5491(c)(3) provides that the President may remove the Director of the CFPB only for cause. For-cause removal of agency executives presents a prima facie challenge to the separation of powers, because it places a limit—imposed by Congress, a co-equal branch of government—on the President's Article II authority over executive branch officials. Accordingly, the constitutionality of the CFPB's organizational structure has been subject to extensive litigation.[1] Most courts that have considered the question have found that for-cause removal of the CFPB Director is constitutional.[2]

Nonetheless, the Supreme Court has held that for-cause removal is constitutional in Humphrey's Executor v. United States (Humphrey's Executor) and Morrison v. Olson (Morrison), at least where the agency in question exercises "quasi-legislative" or "quasi-judicial" functions. However, the Court reached the opposite conclusion in Free Enterprise Fund v. Public Company Accounting Oversight Board, a case in which officers of the Public Company Accounting Oversight Board had two levels of protection against presidential removal.

Seila Law LLC (Seila Law), a law firm that provided debt relief services, was under investigation by the CFPB. As part of its investigation, the CFPB issued a civil investigative demand (CID) to Seila Law, which required Seila Law to produce certain documents. Seila Law declined to comply with the CID. The CFPB brought a motion to enforce the CID to the United States District Court for the Central District of California, which granted the motion.[3]

Seila Law's appeal to the Ninth Circuit was dismissed. The Court held that the Supreme Court's prior decisions upholding for-cause removal in Humphrey's Executor and Morrison were "controlling."[4] It also referred approvingly to the en banc decision of the DC Circuit in PHH Corp. v. CFPB (2018), in which the Circuit found that the structure of the CFPB was constitutional.[5]

There is arguably a circuit split on the question presented in Seila Law. While the Ninth Circuit and DC Circuit have held that the CFPB's structure is constitutional, the Fifth Circuit in Collins v. Mnuchin (2018) held that the structure of the Federal Housing Finance Agency—another agency whose director can be removed only for cause—violated the separation of powers.[6]

The Supreme Court granted certiorari in Seila Law on October 18, 2019, and heard oral argument on March 3, 2020.[7]

An alert published by Holland & Knight noted that the litigation posture of Seila Law is unusual, as the CFPB has declined to defend the constitutionality of its own structure before the Supreme Court.[8]

Thomas A. Barnico, a professor at Boston College Law School, noted that the case raised federalism issues. In particular, he suggested that the CFPB's power to pre-empt state legislation presents special concerns regarding accountability for its leadership.[9][10]