WASHINGTON (Reuters) – The U.S. Supreme Court on Monday handed President Donald Trump more authority over a federal agency charged with protecting consumers in the financial sector, empowering him to fire its director at will and ruling that the structure it was given by Congress violated the U.S. Constitution.
The court, in a 5-4 decision, stopped short of the much more drastic solution of invalidating the Consumer Financial Protection Bureau, an agency set up in 2011 under Democratic former President Barack Obama that long has been criticized by Trump and his fellow Republicans. The justices ruled in favor of California-based law firm Seila Law LLC, which challenged the agency’s structure after being investigated by it.
“The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will,” Chief Justice John Roberts wrote on behalf of the majority.
Trump has sought to undermine the CFPB. Kathy Kraninger, named by Trump to head the agency, took office in 2018 over the objections of Democrats and consumer advocates.
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 had argued that this CFPB structure violated the Constitution’s separation of powers provisions that vest executive authority with the president and limit the power of Congress to encroach in that area.
Under the 2010 Dodd-Frank Wall Street reform law that established the CFPB, the president could terminate a director only for “inefficiency, neglect of duty or malfeasance in office.” Lawmakers wanted the agency to be independent from political interference.
Seila, which brought one of several similar legal challenges to the agency, lost in lower courts and appealed to the Supreme Court.
The law firm, which specializes in resolving consumer debt issues, sued in response to a 2017 CFPB request for information and documents during an investigation into whether it 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 did not violate the Constitution.
Trump’s administration and the current CFPB leadership agreed with the challengers in the case, although administration lawyers stopped short of arguing that the entire agency should be struck down. The Democratic-led House of Representatives intervened in the case in defense of the agency.
The ruling is likely to affect a similar challenge to the Federal Housing Finance Agency, also led by a single director.