Via Financial Times

The US Supreme Court on Tuesday appeared divided about whether to give the president the unfettered power to fire the head of a crisis-era consumer protection agency, in a case with potentially broad implications for the financial sector.

The court heard arguments about the structure of the Consumer Financial Protection Bureau, the outcome of which will determine the extent to which US presidents can influence the agency’s enforcement efforts.

Since it was established in 2010 under the Dodd-Frank act, Republicans have sought to curtail the CFPB. The agency was the brainchild of Elizabeth Warren, the Democratic Massachusetts senator now seeking the Democratic nomination for president.

Most appointees of the president can be fired for any reason, but several agencies like the Federal Reserve, Securities and Exchange Commission and Federal Trade Commission have multi-member boards whose officials are not as easily removed.

The Trump administration has not defended provisions in the Dodd-Frank act that say the director of the CFPB can only be removed for cause. The Department of Justice argued on Tuesday that the president should have unfettered discretion to fire the agency’s chief.

The US high court, which has a 5-4 conservative majority, gave no clear signal of how it may rule during oral arguments on Tuesday morning. Several of the conservative justices appeared supportive of removing restrictions on firing the CFPB’s head.

Brett Kavanaugh, a conservative justice appointed by Donald Trump last year, pointed to the fact that CFPB chiefs serve five-year terms, meaning a new president could be left with a director they did not appoint, as happened when Mr Trump took office in 2017.

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“It’s really the next president who’s going to face the issue,” he told Paul Clement, an attorney appointed by the court to defend the CFPB’s structure. Mr Kavanaugh said under the current system, a president and CFPB director might have “a completely different conception of consumer financial regulatory issues”.

“How do we deal with that real-world consequence that seems different and troubling?” he asked. As an appeals judge prior to his appointment to the Supreme Court, Mr Kavanaugh has previously asserted that the CFPB’s structure was unconstitutional.

But John Roberts, the Supreme Court chief justice appointed by former president George W Bush who could be the swing vote in this case, did not give a strong indication on how he viewed the matter. He asked repeated questions about another aspect of the CFPB’s structure that means it does not rely on Congress for its funding.

The liberal justices pointed to other agencies that are headed by a single director who is protected from dismissal. Elena Kagan, an appointee of former president Barack Obama, noted that the Social Security Administration had a similar structure to the CFPB, saying it was “as powerful, if not more powerful” than the consumer protection agency.

“It’s comparable to the Social Security Administration. So I don’t think this is so unprecedented as you claim,” she told Kannon Shanmugan, the lawyer representing Selia Law, a law firm under investigation by the CFPB that brought the challenge.

Ruth Bader Ginsburg, another liberal justice, sought to cast the case as not suitable for a broad ruling with constitutional implications.

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She noted that the original civil investigation demand issued to Selia Law had been ratified by a later acting director who was not protected by the restrictions on removal. “This case has kind of an academic quality to it,” she told Mr Shanmugan.

One of the questions before the court is whether the removal restrictions can be severed from and dealt with separately from the rest of the legislation that created the CFPB.

Though Mr Shanmugan said that in the first instance, the justices should just invalidate the civil investigative demand, he argued that they should get rid of the agency entirely rather than make the director easily fireable. That outcome appeared unlikely, with Mr Kavanaugh indicating he supported striking down the removal restrictions without going further.

Immediately after the CFPB case, the court heard arguments in a lawsuit concerning the Securities and Exchange Commission’s power to seek disgorgement in federal court of profits obtained through fraud.

Though the commission has long obtained disgorgement in that manner, the power was challenged by Charles Liu and Lisa Wang, a married couple who were ordered by a district court to return $26m they raised from investors after the SEC accused them of fraud.

The justices appeared in agreement about issuing a relatively narrow ruling that would specify disgorgement had to go to investors, rather than the government, where feasible and could only apply to net profits.