The Impacts of Seila Law Beyond Consumer Finance

Although the Supreme Court’s recent decision in Seila Law v. CFPB this week has settled one very large question — Are for cause removal protections for the unitary head of a regulatory agency constitutional? — it has raised many more. Below are three impacts on banking and finance regulation that Seila Law will have beyond consumer finance.

FHFA and the OCC Likely Suffer the Same “Constitutional Defect” as the CFPB

Seila Law turned the once-independent position of Director of the Consumer Financial Protection Bureau into one that serves at the pleasure of the president. Chief Justice Roberts, speaking for the Court in the 5-4 decision, writes that “the CFPB’s single-Director configuration is incompatible with our constitutional structure” because it “lacks a foundation in historical practice,” “some Presidents may not have any opportunity to shape its leadership and thereby influence its activities,” and it receives “funds outside the appropriations process,” among other rationales.

Many have pointed to the impact of Seila Law on current litigation against the Federal Housing Finance Agency. FHFA is run by a single Director for a five-year term and removable only “for cause by the President,” (12 U.S.C. § 4512(b)(2)) and it receives funding through “annual assessments” on the entities it supervises rather than through annual congressional appropriations (Id. § 4516(a)). I predict that FHFA’s for cause removal protections will fall by the end of the year.

The Comptroller of the Currency is similarly situated. The Comptroller serves “for a term of five years unless sooner removed by the President, upon reasons to be communicated by him to the Senate,” (Id. § 2) and is funded through assessments on the institutions it oversees (Id. § 1467). Although removal “upon reasons to be communicated” is semantically different from “for cause,” given that the OCC is the only “independent regulatory agency” (44 U.S.C. § 3502(5)) without explicit removal protections in statute and that White Houses have traditionally allowed Comptrollers to serve the entirety of their five-year terms, many have thought that for cause removal protections for the OCC were implied.

Regardless, after Seila Law this is likely no longer the case. Not only is the OCC run by a single agency head like the CFPB, but the Supreme Court in dicta wrote in Seila Law that “the President could still remove the Comptroller for any reason so long as the President was … ‘in a firing mood.’” This will be the end of any pretense of removal protections for the OCC.

Seila Law Greatly Affects the FDIC

With many multi-member agencies, such as the Securities and Exchange Commission or Commodity Futures Trading Commission, a new president can select a new agency chair on day one of their administration. This has never been the case for the Federal Deposit Insurance Corporation, until now. After Seila Law, a majority of FDIC board members will always be of the president’s party.

The FDIC is a five-member agency. Both the CFPB Director and OCC Comptroller serve on the FDIC board along with three other members appointed by the president and who serve six-year terms (12 U.S.C. § 1812(a)(1)). Of the five board members, not more than three Board members may be of the same political party (Id. § 1812(a)(2)).

Before Seila Law, all board members had presumptive removal protections: the CFPB and Comptroller as described above, and the three other members, although lacking explicit for cause removal protections in statute, were likely protected by Wiener v. United States, a 1958 case that prevented presidents from firing the member of an “adjudicatory body” despite the lack of explicit statutory removal protections. Additionally, as the structure of the FDIC is similar to that of the SEC, which the Supreme Court in Free Enterprise Fund v. PCAOB presumed had for cause removal protections despite statutory silence on the matter, it is possible that the Court would find removal protections for the FDIC as well.

With staggered terms, a new president may have to wait a year or more before being able to name a single member of the FDIC, let alone a majority. Currently, for example, the Board is comprised of three Republicans (the FDIC Chair, the CFPB Director, and an acting Comptroller) and one Democrat (one Democratic seat sits empty). Before Seila Law, the Chair and CFPB Director would serve until 2023 and (hypothetically) a Comptroller confirmed by the Senate next month would serve until 2025. Even if Joe Biden becomes president in 2021, he will not be able to appoint a Democratic majority until 2023, two years into his term.

After Seila Law however, a President Biden could appoint two board members of his choosing—CFPB and OCC heads—on his first day in office. With the current sole Democratic holdover appointment, Biden would have a three-to-one Democratic majority as soon as the Senate confirms his nominees.

Interestingly, in this situation, the Chair of the Board would be a Republican and in the minority on controversial votes. According to the FDIC’s bylaws, the Chair maintains “the general powers and duties usually vested in the office of the chief executive officer of a corporation” and “provid[es] oversight over the direction and operations of each of the Corporation’s various divisions and offices.” That is to say, the Chair could be in a position to lead the agency in a direction contrary to the will of a majority of the Board.

Also interesting, but of less consequence today, it is unclear how the statutory political party split might work when a new president enters office and the FDIC Board has no empty seats. Say, for example, at the end of a Republican presidency the Board were at full capacity, with a GOP Chair, GOP Bureau Director, GOP Comptroller, and two Democratic members. When a Democratic president takes office, they appoint Democrats to head the CFPB and OCC. That puts four Democrats on the Board, a violation of Section 1812(a)(2). But can this provision—a statute governing the FDIC—prevent a president from appointing a CFPB Director or Comptroller of their choosing? Does that provision implicitly override Wiener to permit the president to fire an FDIC board member to make room for their selected CFPB Director or Comptroller? Does that provision then apply to only new appointments made to the Board?

The CFPB, FHFA, and OCC Will Become Subject to OIRA Review, with Significant Effects

Executive Order 12866 requires all agencies to submit their regulations to the Office of Information and Regulatory Affairs (within the Executive Office of the President, colloquially known as the White House) for review except for those issued by agencies defined as an “independent regulatory agency” under the Paperwork Reduction Act (44 U.S.C. § 3502(5)), which includes the CFPB, FHFA, and OCC. OIRA review requires agencies to conduct particular economic analyses when issuing rules, allows for interagency review of agency regulations, and permits the White House an additional venue for exerting presidential control over agencies by prohibiting a rule’s promulgation unless and until OIRA approves of its text.

Much ink has been spilled over the prudence and legality of subjecting independent regulatory agencies to OIRA review, which I will not reiterate here except to say that a significant reason for not subjecting independent agencies to OIRA review is that enforcing this requirement would be contentious. Not answered by the courts, and only partially answered by the Office of Legal Counsel, is the question of whether it is “for cause” for the president to remove an agency head from office for refusing to submit proposed regulations to the White House for approval. Undoubtably, litigation and a possible political crisis would follow, except with regard to any “independent regulatory agency” that has been stripped of its removal protections by the courts.

It is worth noting that Congress has indicated a preference for the CFPB, FHFA, and OCC to be independent of the White House by titling them as “independent” in statute. The OCC stopped submitting its regulations to OIRA after Congress added it to the list of independent agencies in Section 3502 in the 2010 Dodd-Frank Act, though its removal protections (“upon reasons to be communicated”) lacked the explicitness of other independent agencies.

The effects of requiring the CFPB, FHFA, and OCC to abide by any changes the White House has to their regulations would reverberate beyond their own limited jurisdictions. These agencies engage in joint rulemakings with other independent agencies; for example, any changes to the Volcker Rule must be approved jointly by the OCC and four other independent commissions (12 U.S.C. § 1851(b)(2)(B)). If the OCC must receive White House approval before finalizing any regulation, instead of five independent regulatory agencies deciding policy, Volcker Rule changes would need approval from those same five agencies and the White House. The president would gain veto authority over some of the largest and most contentious policy decisions in banking and finance.

It is possible the current president will recognize Congress’s preference and continue to keep these three agencies’ regulations independent of OIRA, regardless of their at-will employment. It is possible the next president will as well. However, some White House in the future will undoubtably decide that the ability to shape CFPB, OCC, and FHFA rules, and the joint rulemakings of other independent agencies, is too great to ignore.


Todd Phillips is a government lawyer in Washington, DC. This post expresses the author’s personal views alone.

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