Kathy Kraninger, director of the Consumer Financial Protection Bureau, prepares to testify at a House Financial Services Committee hearing titled “Putting Consumers First? A Semi-Annual Review of the Consumer Financial Protection Bureau,” in Rayburn Building on Thursday, March 7, 2019.

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The Supreme Court looked likely to weaken the Consumer Financial Protection Bureau, but leave it standing, during oral arguments in a major business regulation case argued on Tuesday.

The case concerned whether the regulatory agency established in the wake of the 2008 financial crisis was structured unconstitutionally by giving too much power to its director.

Under the legislation that established the bureau, the head of the CFPB, who serves a five-year term, may only be removed by the president for “inefficiency, neglect of duty, or malfeasance in office.”

The justices sparred on Tuesday over whether that removal provision placed an unconstitutional burden on the president’s ability to exercise his executive power and, if so, whether the provision could be severed from the rest of the legislation while leaving the CFPB otherwise in place. 

The top court upheld a similar for-cause removal standard for members of the FTC in the 1935 case Humphrey’s Executor v. United States and for independent counsels in the 1988 case Morrison v. Olson. 

The bureau has come under sustained legal attack from conservatives since it was established nearly ten years ago after being envisioned by Sen. Elizabeth Warren, the Democratic presidential candidate, while she was a professor at Harvard Law School. 

Chief Justice John Roberts, viewed as the swing justice in the case, largely avoided the question of severability and suggested that for-cause removal wasn’t that high a bar to meet.

Justice Brett Kavanaugh, who wrote as a federal appeals court judge that he believed the agency director had too much independence, did not give any hints that his view had changed.

But Kavanaugh also seemed to maintain his view that the for-cause removal provision could be stripped from the legislation without crippling the agency entirely. Kavanaugh noted that the legislation that created the bureau included a clause that indicated that the rest of the law should remain standing if any part of it is found to be unconstitutional. 

The court’s four liberals seemed inclined to side with the CFPB, which was defended by a court-appointed attorney because the Department of Justice refused to do so, as well as by an attorney representing the Democratic-controlled House of Representatives. 

Justice Elena Kagan compared removal to a “nuclear bomb,” and said there were many mechanisms outside of removal that a president could control an independent agency.

Justice Ruth Bader Ginsburg called the for-cause removal provision a “very modest restraint.”

Justice Sonia Sotomayor said that “for over 200 years” the court has waited for disputes between the president and a removed department head to resolve questions about removal standards.

The case was brought by the California consumer law firm Seila Law, which refused to comply with the CFPB after it was targeted in an investigation.

The Trump administration, via the Department of Justice, sided with the firm on the for-cause removal restriction but argued that it could be severed from the rest of the law. Seila Law argued in favor of doing away with the entire CFPB.  

The case is Seila Law v. Consumer Financial Protection Bureau, No. 19-7. 

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