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Strengthening Checks and Balances

Whose Removal is it Anyway?

An Analysis of Seila Law LLC v. Consumer Financial Protection Bureau
(Illustration: CJ Ostrosky / POGO)

Earlier this month, the Supreme Court heard oral arguments in Seila Law LLC v. Consumer Financial Protection Bureau, a case that could result in sweeping limitations on Congress’s ability to insulate certain federal agencies from political and outside influence. The Consumer Financial Protection Bureau (CFPB) is an executive agency tasked with enforcing a number of consumer finance laws; Seila Law, a law firm whose practices were being investigated by CFPB, argues that the CFPB’s structure is unconstitutional because it limits the president’s power to remove the CFPB’s director. It may seem like an isolated, technical dispute, but what’s really at issue is a fundamental question of checks and balances in America’s system of government.

If the Supreme Court ultimately rules against the structure of the CFPB, it could effectively deem a third of the federal government’s structure unconstitutional. Because of these high stakes, the Project On Government Oversight (POGO) has filed an amicus curiae brief with the court, arguing that history shows Congress has the power to structure agencies like the CFPB.

How Did We Get Here?

What’s really at issue is a fundamental question of checks and balances in America’s system of government.

In response to the 2008 recession, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which, among other things, created the CFPB and gave it the authority to write and enforce regulations regarding a wide variety of financial institutions and practices, like debt collection and mortgage lending, that impact consumers. Dodd-Frank protects the CFPB’s director by stipulating that the president can only fire her for “inefficiency, neglect of duty, or malfeasance in office.” Unless removed, the director may hold office for five years.

This kind of protection is common for leaders of agencies that regulate large industries, as their work tends to draw the ire of the politically powerful. Regulatory work is likely to stir up the sort of controversy between government and private industry that could lead the president to conclude that it is politically beneficial to remove an agency head regardless—or even because—of how well they execute the law. Insulating leaders from politically grounded firings with “for-cause” removal protections ensures they have the independence they need to do what the law requires them to. In this case, that means protecting consumers from deceitful or dangerous business practices.

The current case came about after the CFPB opened an investigation into possible violations of federal telemarketing law by Seila Law, a California-based firm handling private debt cases. Seila Law responded to this by filing suit, arguing that the removal restrictions on the director of the CFPB are unconstitutional constraints on the power of the president, and as a result the CFPB director has no power to open an investigation against the firm.

The U.S. Court of Appeals for the 9th Circuit found the protections to be constitutional, and the law firm appealed to the Supreme Court.

The crux of Seila Law’s argument was that if the court finds the CFPB director’s protections to be constitutional, it will overly-insulate federal officials from meaningful political accountability.

Several justices questioned whether the removal protections were as limiting as Seila Law claims, suggesting that the law could be read as setting a low bar for when a president can fire the director. At the same time, justices were hesitant of creating precedent that would “water down” the interpretation of removal protections for other offices.

In all, after 70 minutes of debate, it wasn’t clear where the court will land on the question of constitutionality. We won’t know until the final decision comes out, likely this summer.

Contested Powers

Seila Law’s claim taps into a long-running source of conflict between Congress and the president over the separation of powers.

The federal government consists of three branches established in Articles I, II, and III of the Constitution: respectively, Congress, the executive branch, and the federal courts. Under Article I of the Constitution, Congress has the power to pass laws that are “necessary and proper” for the execution of its powers. One way it has done this is by creating federal agencies such as the CFPB that are typically housed in the executive branch and regulate everything from air quality to zebra hides. Why does it matter where the CFPB is located? Well, per Article II, all executive power is given to the president. This includes the power to appoint ambassadors, Supreme Court judges, and other “officers of the United States,” as well as to oversee the operations of the executive branch.

Things get complicated because the three branches were created as co-equal partners with certain checks and balances built in. For example, those presidentially appointed officers must be confirmed by the Senate.

Seila Law asserts in their argument that in limiting the president’s ability to remove the director of the CFPB, Congress has tipped the balance in its own favor. Yet, while hiring is discussed in the Constitution, notably absent is any discussion of the issue in the CFPB case: the president’s ability to fire officials. As a result, the Supreme Court has tried to fill in some blanks.

Removal According to the Supreme Court

Three cases give us some context into how the Supreme Court has interpreted removal powers in the past: Myers, Humphrey’s Executor, and Morrison.

In a 1926 case, Myers v. United States, the court held that superior officers—the ones appointed by the president—must be removable at will by the president because the Constitution gives all executive power to the president. The petitioners in Seila Law v. CFPB have hinged their argument on Myers’ interpretation of the removal power, arguing that the CFPB director is a superior officer and, per Myers, must be removable at-will by the president.

Less than a decade later in Humphrey’s Executor v. United States, the court considered the case of a deceased Federal Trade Commission (FTC) commissioner who died while seeking the wages lost through his removal, a removal that occurred purely because President Franklin D. Roosevelt wanted to replace him with someone he had selected. The authorizing statute for the FTC required that commissioners be removed only for “inefficiency, neglect of duty, or malfeasance in office.” The court found these constraints on the removal power of the president acceptable because the role of FTC commissioners is not executive but rather quasi-judicial and quasi-legislative, and because the president does not have “illimitable power of removal.”

Decades later, in Morrison v. Olson, the Supreme Court found that it was acceptable for Congress to create an independent counsel position inside the executive branch and provide removal protections for that person because doing so did not increase the power of one branch at the expense of another. In short, the Supreme Court’s rulings on the removal power are both few in number and rather inconsistent, making it difficult to determine what legal standard should be used to assess removal clauses.

Removal According to History

Fortunately, we have other sources besides Supreme Court precedent we can study to better understand the president’s removal power. American history is full of instances where Congress imposed limitations on the president’s ability to remove executive officers. Even the first Congress, often an instructive source for understanding how the framers viewed the Constitution, created purely executive branch offices whose officers had far more restrictive removal clauses than the one controlling removal of the CFPB director.

One such example is the Sinking Fund Commission, an executive entity established in 1790 by the first Congress that had members who were not in fact part of the executive branch and so could not be removed by the president at all. At other times, the first Congress instated removal clauses that prevented the president from removing officers during their tenure in office and in others required that the president remove officers, a far more sweeping check on executive power than the removal clause at issue in Seila Law v. CFPB.

Since the nation’s founding, Congress has continually exercised powers similar to the one in question in Seila Law v. CFPB, continues to do so.

During Reconstruction, the Senate passed the Tenure of Office Act, which required that the Senate consent to the removal of executive officers. Moreover, in the late 19th century the Senate also imposed constraints on the removal of certain officers with identical removal clauses limiting removal to cases of “inefficiency, neglect of duty, or malfeasance in office.” Taken together, these examples show that Congress’s ability to govern the firing of executive officials is a well-established power.

Modern times show the continued importance of the power. There are at least eight executive agencies which have the same or similar term limits and the same removal clause as the CFPB director, including the Office of Special Counsel. All of this is to say simply that, since the nation’s founding, Congress has continually exercised powers similar to the one in question in Seila Law v. CFPB, continues to do so, and has even imposed far more restrictive clauses on the president when it sees fit. With such a broad collection of examples both past and present using the same language or stronger language restricting or at times even requiring removal, Seila Law’s argument that there is no historic basis for such a restraint on executive power seems rather thin.

So What Happens if the CFPB’s Structure is Found Unconstitutional?

In addition to deciding whether the CFPB director’s for-cause removal protections are unconstitutional, the court will also decide whether the removal protections themselves are “severable.” In other words, if the court strikes down the removal protection, it has to decide whether that provision can be removed from the bigger Dodd-Frank act, or if the whole law would have to go. Since that law touches almost every aspect of American financial regulation, such a ruling would cause chaos as Congress would have to recreate a new law from the ground up.

Even a more limited ruling that the CFPB director is unconstitutionally protected but the rest of Dodd-Frank can stay would likely affect other federal officers with similar protections. For instance, Congress has built about a third of the federal government consistent with the legal reasoning in Humphrey’s Executor v. United States. The sheer disruption of a ruling upending this structure is reason enough for the court to use caution in this case. Beyond radically reshaping the government, a ruling against the removal protection would have serious policy implications.

A world in which Seila Law prevails is a world in which Congress will have only as much oversight of the executive branch as the president allows it to have.

Offices with protected leaders play a crucial role in guarding against waste, fraud, and abuses of power. For instance, the political independence of the Office of Special Counsel has proved vital from its establishment in 1979 into the modern day, when the office has provided effective investigation into the Veterans Affairs waitlist scandals, Army contract waste, Kellyanne Conway’s violation of the Hatch Act, politicization of Customs and Border Protection, and retaliation against whistleblowers.

The power of Congress to constrain the president’s removal power is a vital, historic element of congressional oversight that allows it to construct politically independent watchdogs such as the Office of Special Counsel, as well as other politically sensitive agencies such as the Consumer Financial Protection Bureau, which rely on insulation from political concerns to do their jobs effectively. A world in which Seila Law prevails in overturning Humphrey’s Executor v. United States is a world in which Congress will have only as much oversight of the executive branch as the president allows it to have. Should an officer displease him, the president could simply dismiss that officer at will and place his own, more loyal but potentially less competent, officer in place, obstruct oversight, and otherwise interfere with the constitutionally granted powers of Congress.

At this moment in history, a great deal of the government’s strength is in executive agencies, but Congress retains some control via the appointments clause, removal restrictions, and their control of the budget. Removing one of those constraints would give the president greater leverage over the immense power of the executive while taking away one of the key historic powers of Congress to check him. Such a ruling would be a serious legal error with equally serious consequences.

Read POGO’s brief, along with the briefs of petitioner, respondent, court-appointed amicus curiae, and others, on SCOTUSblog.