On March 3, the Supreme Court heard argument on the constitutionality of the structure of the Consumer Finance Protection Bureau (CFPB). The question presented in Seila Law LLC v. CFPB is “whether the vesting of substantial executive authority in the Consumer Financial Protection Bureau, an independent agency led by a single director, violates the separation of powers.”

The CFPB was created by the Dodd-Frank Act (the Act) in 2010. The Act establishes the CFPB as an “independent bureau” within the Federal Reserve, created to “regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws.” The Director is “the head of the Bureau” and “shall be appointed by the President, by and with the advice and consent of the Senate.” The President “may remove the Director for inefficiency, neglect of duty, or malfeasance in office.”

The Court, the parties, and most amici in Seila have understandably focused on the separation of federal powers between Congress and the President and the question whether the portion of the Act establishing the Director, if struck down, is severable from the remainder of the Act. These are important issues. They dominated the oral argument.

But the Court should also heed a latent issue of federalism: Should a single federal official who holds the power to preempt state law be directly accountable to the President and thus directly accountable to the voters of the States who might suffer his preemptive acts?

The history of pre-emptive actions by agencies such as the Federal Trade Commission, Office of the Comptroller of the Currency, the Federal Communications Commission, the Department of Education, and the CFPB itself underscore the risks presented by the current structure of the CFPB. For example, in the 1980s, the FTC asserted a power of preemption in the area of state professional licensure through federal regulation and adjudication. In the early 2000s, the OCC asserted the power to preempt state banking and insurance regulation by “determinations” issued under the Gramm-Leach-Bliley Act.  More recently, preemption by FCC rule has been litigated in the D.C. Circuit case involving “net-neutrality,” and the DOE has taken the position that DOE regulations preempt state regulations concerning student loans.

The wide range of these agency “pre-emptors” spans (1) federal agencies under the direct control of the President, (2) multi-member, so-called “independent” agencies, and (3) now the single-member, independent CFPB. Recently, the CFPB has stated that it has the power to displace state enforcement action under Dodd-Frank through its “Policy on the Compliance Assistance Sandbox” (Docket No. CFPB – 2018 – 0042), 84 Fed. Reg. 48246, 48248 (September 13, 2019), and, in the same “Policy,” reserved its power to preempt state enforcement of state law; meanwhile, it retains general power to issue preemption “determin[ations]” regarding state law under 12 C.F.R. 1002.11(b)(2), such as those issued in 2013 that purported to nullify Tennessee and Maine laws. 

Of course, not all actions by the CFPB are pre-emptive of state efforts. In some cases, the Director will likely share enforcement goals and means with state enforcers, and the CFPB enabling act contemplates enforcement “coordination.” In this role, the Director may be a powerful ally of state enforcers. But the election of 2016 and the subsequent appointment of director with different views than those of her predecessor show that “independence” can be a two-edged sword. A independent director bent on deregulation may find preemption by CFPB rule (or other agency action such as a “determination”) to be a useful machete in clearing the state regulatory underbrush, and if that director cannot be removed at the pleasure of a new president, such a policy of deregulation through preemption may not be reversed until the end of the director’s five-year term. 

Relying on Humphrey’s Executor, defenders of the agency’s current structure argue that the CFPB is no different from the constitutional structure of multi-member, “independent” agencies such as the FTC, a structure upheld by the Court in Humphrey’s. The briefs and oral argument treated this issue in depth, but none highlighted the pre-emptive risk posed by a single, less-accountable “pre-emptor,” a “Humphrey’s Pre-emptor” who lacks a full degree of democratic accountability for his preemptive acts.

Preemption by agency regulation, adjudication, or “determination” is always problematic; when imposed by a single, independent federal official, it may pose even more troublesome issues for state lawmakers. Professor Ernest Young of Duke Law School has noted the special dangers presented by preemption by federal agencies:

Federal administrative action is, in important ways, considerably more threatening to state autonomy than legislation is. As the constitutional limits on national action fade into history, the primary remaining safeguards for state autonomy are political, stemming from the representation of the states in Congress, and procedural, arising from the sheer difficulty of navigating the federal legislative process. These safeguards have little purchase on executive action. The states have no direct role in the “composition and selection” of federal administrative agencies, and much of the point of such agencies is to be more efficient lawmakers than Congress. Agency action thus evades both the political and the procedural safeguards of federalism.

Similarly, preemption by certain agencies may evade even the modest “procedural safeguards” established by previous presidents through executive orders and memoranda. Executive Order No. 13132 (August 4, 1999) and the Memorandum for the Heads of Departments and Agencies, 74 Fed. Reg. 24693-94 (May 22, 2009), impose on certain agencies requirements for the issuance of regulations impacting federalism. Though the Act provides that the “Bureau shall be considered an Executive agency, as defined in section 105 of Title 5,” the Act further provides that the CFPB is “an independent bureau” within the Federal Reserve. Its independence may place the CFPB among the “independent regulatory agencies” (No. 13132) not bound by the Executive orders and memos on federalism. If so, the CFPB may be exempt from even the modest restraints that the Executive has imposed on itself, thus heightening the concerns about agency preemption expressed by Professor Young.

Finally, in Seila, Professor Young’s concern about federalism and accountability for federal pre-emptive action might be seen by the Court to merge with the strong case for a unitary executive made by Hamilton in The Federalist No. 70. Hamilton supported the unitary executive for reasons especially apt in Seila. He said that one of the “weightiest objections to a plurality in the Executive . . . is, that it tends to conceal faults and destroy responsibility.” “Where power and responsibility is spread, it often becomes impossible, amidst mutual accusations, to determine on whom the blame or the punishment of a pernicious measure” ought to fall. Where the Executive is not unified, the blame for a measure is “shifted from one to another” so as to leave the public “in suspense” about its author. The antidote, he said, is a single, unified executive branch, headed by a President who alone would assume responsibility for executive virtues and vices. A unified executive, Hamilton argued, would promote energy, efficiency, and – most importantly for the issues presented in Seila – accountability, a theme noted several times in the oral argument on March 3.

Issues of structure may be boring, until a bridge falls. Former Boston mayor James Michael Curley was said to excuse the collapse of an overpass built by a favored contractor as containing “an injudicious mixture of sand and cement.” In Seila Law, the Court is conducting a structural review of the CFPB; it should consider whether the agency is made of an “injudicious mixture” of pre-emptive power and autonomy.

Thomas A. Barnico teaches at Boston College Law School.