Supreme Court Rules CFPB Director Removal Restrictions Violate Constitution

Background Screening News

Written By ESR News Blog Editor Thomas Ahearn

On June 29, 2020, the Supreme Court of the United States (SCOTUS) issued an opinion by a 5-4 vote in the case of Seila Law LLC v. Consumer Financial Protection Bureau that held the leadership of the Consumer Financial Protection Bureau (CFPB) by a single Director removable only for “inefficiency, neglect of duty, or malfeasance in office” violated the separation of powers in Article II the U.S. Constitution and thus was unconstitutional.

In the opinion by Chief Justice John Roberts, the Supreme Court ruled that the removal restrictions violated the separation of powers in Article II of the Constitution, which gives executive power to the President and empowers him to “take Care that the Laws be faithfully executed.” An opinion analysis on SCOTUSblog.com stated that “history and precedent have long confirmed that such a power includes the power to remove executive officials.”

Chief Justice Roberts wrote on behalf of the majority in the opinion: “We therefore hold that the structure of the CFPB violates the separation of powers. We go on to hold that the CFPB Director’s removal protection is severable from the other statutory provisions bearing on the CFPB’s authority. The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will.”

The case Seila Law v. CFPB stemmed from a California-based law firm that was under investigation by the CFPB for possible violations challenging the CFPB’s authority to request documents from the firm, arguing that the CFPB’s structure was unconstitutional because it had just one director with substantial power but who could only be removed “for cause” instead of being removable “at will” for any reason, the opinion analysis stated.

In the wake of the Financial Crisis of 2007-2008, Congress established the CFPB, an independent regulatory agency tasked with ensuring that consumer debt products are safe and transparent, as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Congress transferred the administration of 18 existing federal statutes to the CFPB, including the Fair Credit Reporting Act (FCRA) that regulates background checks.

The CFPB enforces the FCRA. In November 2019, the CFPB filed a proposed Stipulated Final Judgment and Order that would require a background screening company to pay $6 million in monetary relief and a $2.5 million civil money penalty to resolve allegations of FCRA violations for failing to employ reasonable procedures to ensure the maximum possible accuracy of the information included in the consumer reports it prepared.

Employment Screening Resources® (ESR) – a leading global background check provider – offers fast, accurate, and affordable background checks that comply with FCRA regulations that are enforced by the CFPB. In November 2019, ESR was named as one of the top pre-employment screening services for enterprise-level businesses by HRO Today Magazine’s Baker’s Dozen. To learn more about ESR, visit www.esrcheck.com.

NOTE: Employment Screening Resources® (ESR) does not provide or offer legal services or legal advice of any kind or nature. Any information on this website is for educational purposes only.

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