In the wake of the U.S. Supreme Court’s June 29, 2020 decision in Seila Law LLC v. Consumer Financial Protection Bureau, which held that the CFPB’s leadership structure violates the separation of powers mandated by the U.S. Constitution and made the Bureau’s Director removable by the President at will, many are urging Congress to further reform the Bureau’s leadership structure, possibly by replacing the CFPB Director with a five-member commission. Proponents of Congressional action to further address CFPB leadership include CFPB Director Kathy Kraninger, Republican members of the House Financial Services Committee, sponsors of legislation introduced in Congress, and many trade associations.

A bill introduced in the U.S. Senate on June 17, 2020 would re-name the CFPB the “Financial Product Safety Commission”, and change its leadership to a five-member commission. The Financial Product Safety Commission Act of 2020 was introduced by U.S. Senator Deb Fischer (R-Neb.), who since 2013 has introduced successive versions of legislation seeking to reform the CFPB’s leadership structure.

A companion bill, H.R. 6116, the Consumer Financial Protection Commission Act, was introduced in the U.S. House of Representatives by Representative Blaine Luetkemeyer (R-MO) in March 2020.

Propelled by the U.S. Supreme Court’s Seila Law decision, the sponsors of the CFPB restructuring bills are urging Congress to move forward and adopt the bills. Both Senator Fischer and Representative Luetkemeyer issued statements on June 29, 2020 calling for the passage of their respective bills.

Also on June 29, trade associations including the Consumer Bankers Association, the Credit Union National Association, and the American Bankers Association issued statements calling for Congress to pass legislation creating a bipartisan commission to lead the CFPB.

S. 3990 and H.R. 6116 both provide that the five commissioners of a re-named consumer financial products watchdog agency, the “Financial Product Safety Commission” (per S. 3990) or the “Consumer Financial Protection Commission” (per H.R. 6116), would be appointed by the President, confirmed by the Senate, and serve staggered five-year terms. One commissioner would be appointed by the President to serve as Chair. No more than three commissioners could be members of the same political party. Until all five commissioners and the Chair are appointed, the current CFPB Director would serve as Chair of the Commission. The President could remove a commissioner for “inefficiency, neglect of duty, or malfeasance in office”. The proposed legislation also would establish quorum requirements, the authority of the Chair, and limitations on that authority.

Earlier this year, numerous trade associations joined in letters to Representative Luetkemeyer and Senator Fischer supporting the bills, citing the benefits of the proposed restructure including a more stable and balanced regulatory environment and prevention of executive and political interference in the supervision and regulation of financial institutions.

The letters also point out that the original version of the Dodd-Frank Wall Street Reform and Consumer Protection Act adopted by the U.S. House of Representatives in 2010 provided that the CFPB would be led by a bipartisan five-member commission. However, as ultimately enacted, Congress placed the CFPB under the leadership of a single Director insulated from at-will removal.

In an opinion published in on-line newsletter The Hill on July 27, 2020, Senator Fischer again called on Congress to adopt her bill replacing the CFPB’s single Director with a five-member commission. She noted that while the Seila Law decision was a “win when it comes to separation of powers”, she urged that further action is needed in order for the CFPB to be the independent agency envisioned by its original architects: “Beyond questions of constitutionality and prudence, the CFPB’s current single-directorship model means that the agency’s extensive regulatory, investigative, and enforcement actions are subject to change with every presidential election, creating a whiplash effect. The agency is simply too powerful for this to be sustainable…”.

On July 30, 2020, as reported in the American Banker, CFPB Director Kathy Kraninger told the House Financial Services Committee she would welcome action by Congress to address the CFPB’s leadership structure. During the hearing, Republican members of the Committee made statements supporting the idea of a bipartisan commission to lead the CFPB.

While the narrow scope of the current bills might make them better candidates for adoption than previous bills such as 2016’s CHOICE Act, that not only would have changed the CFPB’s leadership but also introduced a broad array of controversial provisions, we still think it is unlikely that the current bills would be supported by Democratic lawmakers. Republican support for the current bills seems to be growing, but it is doubtful that the bills will gain traction this year. In addition, while we continue to share industry’s preference for the CFPB to be led by a commission, the Supreme Court’s Seila Law decision calls into question whether insulation from at-will removal would be deemed appropriate even for a bi-partisan five-person leadership structure. Although the Supreme Court did not overrule its 1935 decision in Humphrey’s Executor v. United States, which upheld the constitutionality of the for-cause removal protection afforded to the FTC’s five commissioners, it narrowly read that decision to create an exception to the President’s unrestricted removal power only for “multimember expert agencies that do not wield substantial executive power.” The Court contrasted “the New Deal-era FTC upheld [in Humphrey’s Executor]” with the CFPB, highlighting the CFPB Director’s authority to “promulgate binding rules fleshing out 19 federal statutes, including a broad [UDAAP prohibition]”, “unilaterally issue final decisions awarding legal and equitable relief in administrative adjudications”, and “seek daunting monetary penalties on behalf of the United States in federal court.”