A divided Supreme Court of the U.S. (SCOTUS) recently ruled in Seila Law v. Consumer Financial Protection Bureau (CFPB), that restrictions on the removal of the CFPB director are unconstitutional. Under the law that created the CFPB, the director can be removed only for “inefficiency, neglect of duty or malfeasance in office.” This decision will likely impact the Federal Housing Finance Agency, which has a similar structure as the CFPB and has a challenge pending in court related to its structure. The directors of the CFPB and the FHFA will likely no longer be independent regulatory agencies, but rather parts of any presidential administration that can be fired at will.

In an opinion by Chief Justice John Roberts, the court ruled that the removal restrictions violate the Constitution’s separation of powers. To uphold the removal restrictions, Roberts reasoned, the court would have to extend its prior precedents to what he described as a “new situation” – “an independent agency that wields significant executive power and is run by a single individual who cannot be removed by the President unless certain statutory criteria are met.” He declined to do so, concluding that an agency like the CFPB “has no basis in history and no place in our constitutional structure.”

This case arose when Seila Law, a California-based 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.