INDUSTRY NEWSCFPBSupreme Court Lifts Director Position Removal LimitsIn June the Supreme Court ruled that the President is free to fire the Director of the CFPB without cause, holding that the Bureau’s singledirector leadership structure as created by the Dodd-Frank Act violates the separation of powers stipulated in the U.S. Constitution. The CFPB Director position is a five-year term appointed by the President, and the court’s decision rejects the Dodd-Frank provision that sought to place limits on presidential oversight of independent agencies. Previously, the CFPB Director could only be removed from the position for “inefficiency, neglect of duty or malfeasance in office.” The case, Seila Law v. Consumer Financial Protection Bureau, began when Seila Law, a Californiabased law firm that provides debt-relief services to consumers, was under investigation by the CFPB for possible violations of telemarketing sales rules. Seila Law challenged the CFPB’s authority to request documents from the firm, arguing that the bureau’s structure is unconstitutional because it has just one director, who has substantial power but can only be removed “for cause.” Instead, Seila Law argued, the director should be removable “at will” – that is, for any reason.The Supreme Court’s vote was 5 to 4, with the five more conservative justices in the majority. Chief Justice John G. Roberts Jr., writing for the majority, said the Constitution did not allow powerful agency officials to be insulated from some kinds of executive oversight and that the removal restrictions violate the Constitution’s separation of powers.“The CFPB Director has no boss, peers or voters to report to,” the Chief Justice wrote. “Yet the Director wields vast rule making, enforcement and adjudicatory authority over a significant portion of the U.S. economy. The question before us is whether this arrangement violates the Constitution’s separation of powers.”OF INTEREST TO THE SMALL-DOLLAR LENDING INDUSTRY IS THE ISSUE OF “RATIFICATION,” OR WHETHER THE BUREAU CAN CURE ANY DEFECT IN ITS PRIOR ACTIONS THROUGH AN AFFIRMANCE BY THE CURRENT DIRECTOR . . .Although the removal restrictions are unconstitutional, Roberts explained, they can be separated from the rest of the Dodd-Frank Act, the statute that gives the CFPB its authority. The remaining provisions of the Dodd-Frank Act dealing with the powers and structure of the CFPB can operate without the removal restrictions, “and there is nothing in the text or history of the Dodd-Frank Act that demonstrates Congress would have preferred no CFPB to a CFPB supervised by the President.” In fact, Roberts pointed out, the Dodd-Frank Act contains a provision that specifically provides that if any part of the law is struck down as unconstitutional, the rest of the law should survive. The CFPB can there- fore continue to operate, Roberts concluded, “but its Director, in light of our decision, must be removable by the President” for any reason.Of interest to the small-dollar lending industry is the issue of “ratification,” or whether the Bureau can cure any defect in its prior actions through an affirmance by the current Director, Kathy Kraninger, who is no longer immune from removal by the President. In addressing ratification, the Supreme Court remanded the matter to the Ninth Circuit Court of Appeals to decide whether the ratification by the CFPB of the issuance of the civil investigative demand issued to Seila Law was sufficient to cure the constitutional deficiency. Following the ruling, the CFPB filed a declaration in the Ninth Circuit stating that it had ratified the prior actions. Seila Law responded, arguing that the ratification was insufficient to cure the defect. The Ninth Circuit court has the matter under consideration.If the Ninth Circuit rules that ratification after the fact is insufficient to cure the constitutional defect that existed at the time of the issuance, other actions by the CFPB, including the issuance of regulations such as the 2017 Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule’s (“small-dollar rule”) payment provisions, and other enforcement actions issued prior to the ruling, could be set aside by courts. In the litigation pending in the Western District of Texas, the industry trade groups challenging the small-dollar rule have filed a motion for summary judgment, arguing in part that the ratification by the CFPB of the payments provisions is insufficient to cure the constitutional defect. A ruling in the Seila Law case is expected this year. A decision in the industry litigation challenging the small-dollar rule is not expected until next year.