Any nominee that President Trump would appoint to the Supreme Court would likely take a conservative view of the proper scope of the government’s regulatory power. But one reported leading candidate, in particular, would be a threat to the existing Consumer Financial Protection Bureau, the agency designed by Sen. Elizabeth Warren, D-Mass., to regulate mortgages, credit cards, and other consumer products.
D.C. Circuit Court Judge Brett Kavanaugh has already ruled that the agency, as currently constituted, is unconstitutional.
In a 2016 opinion, Kavanaugh wrote that the CFPB is a “gross departure from settled historical practice.”
The CFPB, created by the 2010 Dodd-Frank financial reform law, features a sole director, rather than a bipartisan commission. That director, moreover, cannot be fired by the president except for cause. Conservatives have argued that the combination makes the CFPB director unaccountable to the public.
Kavanaugh argued that the director has “more unilateral authority — that is, authority to take action on one’s own, subject to no check — than any single commissioner or board member in any other independent agency in the U.S. government.”
He ruled that the president has the power to dismiss the director at will. That is a reform that congressional Republicans have also sought.
Dodd-Frank intentionally gave the CFPB director broad discretion to oversee markets in order to allow him to move quickly and aggressively to police markets.
Under the first director, Obama appointee Richard Cordray, the agency did just that, aggressively regulating firms and writing sweeping new rules on products like payday loans and practices like mandatory arbitration.
Under the Trump-appointed acting Director Mick Mulvaney, however, the agency has moved just as fast in the opposite direction. The fiscally conservative former South Carolina congressman, who also serves as Trump’s budget director, has begun unilaterally reforming the agency, refocusing its mission from aggressively overseeing companies to relieve regulatory burdens. Mulvaney has even changed the name to the Bureau of Consumer Financial Protection, or BCFP.
Mulvaney’s actions have outraged progressive advocates of the bureau. But they are right in line with White House policy. White House counsel Donald McGahn, the man in charge of the selection process for Trump’s nominee to replace retiring Justice Anthony Kennedy on the Supreme Court, has said that a top priority for appointees is curbing the administrative state, of which the CFPB is an exemplar.
The bureau’s very structure could be in question.
“I think that there is a reasonably good chance that the CFPB constitutionality question will eventually get to the Supreme Court,” said Alan Kaplinsky, of the Consumer Financial Services Group at the law firm Ballard Spahr.
One caveat is that it’s not clear how a CFPB would come before the Supreme Court while the Trump administration is in power, given that it may not defend the agency’s actions undertaken during the Obama years. Another consideration is that Kennedy, too, would have been viewed as an ally by businesses looking to curtail the CFPB’s discretion.
For Kavanaugh, too, one hiccup might be that he would be obliged to recuse himself if a decision he was previously involved in came before the Supreme Court.
Kavanaugh’s 2016 ruling would have kept the CFPB in place, while ensuring that its director could be fired by the president. But the ruling was later reversed by the full D.C. Circuit Court of Appeals. In general, Kavanaugh appears to take a skeptical view of the powers of independent agencies.
Separately, though, a judge for the Southern District of New York ruled last month that the agency is unconstitutional and should be eliminated altogether.
