The Supreme Court on Friday agreed to hear a legal challenge to the structure of the Consumer Financial Protection Bureau (CFPB) in a major victory for critics of the powerful financial regulator.

The court on Friday announced it would take up the lawsuit Seila Law vs. CFPB. The case involves a law firm, Seila Law, that refused to comply with a CFPB request for documents.

The firm challenged the agency's structure as unconstitutional, arguing that the bureau’s director enjoys an illegal amount of independence from the president’s executive branch authority.

ADVERTISEMENT

The Trump administration and CFPB Director Kathy Kraninger have backed the challenge, which could transform or even dismantle the agency.

House Democrats urged the Supreme Court to reject Seila Law’s appeal for a ruling, insisting that Congress did not infringe on separation of powers.

The CFPB was created by the 2010 Dodd-Frank Wall Street reform law to police the financial sector for consumer fraud and abuse. Dodd-Frank prevents the president for firing the CFPB director before his or her five-year term expires unless “for cause,” which is considered to be severe neglect or misconduct.

Seila Law and the Trump administration argue that the “for cause” provision hinders the president’s constitutional authority over the executive branch.

A district court ruled in favor of the CFPB and the Ninth Circuit Court of Appeals upheld that ruling, leading Seila Law to appeal to the Supreme Court.

The Seila case is the first of several unsuccessful legal challenges to the CFPB to reach the Supreme Court, including cases pending appeals in the Fifth and Second Circuits.

The U.S. Court of Appeals for the District of Columbia Circuit ruled in 2016 that the controversial watchdog agency's structure was unconstitutional. But that decision, authored by current Supreme Court Justice Brett Kavanaugh Brett Michael KavanaughTrump plans to pick Amy Coney Barrett to replace Ginsburg on court Collins trails challenger by 4 points in Maine Senate race: poll SCOTUS confirmation in the last month of a close election? Ugly MORE, was overturned by the full appeals court in 2018.

The CFPB’s liberal allies say the ascension of Kavanaugh and fellow conservative justice Neil Gorsuch Neil GorsuchTrump plans to pick Amy Coney Barrett to replace Ginsburg on court Abortion stirs GOP tensions in Supreme Court fight Poll: 59 percent think president elected in November should name next Supreme Court justice MORE to the Supreme Court poses an existential threat to the bureau’s existence. CFPB allies fear the court could rule the entire agency unconstitutional and shut it down.

But the court’s order taking up the case presented a potential salvation for the CFPB. The court asked the agency's defenders and Seila Law to argue whether the “for cause” provision can be severed from Dodd-Frank to eliminate an unconstitutional check on the president’s power.

The CFPB has been the center of a fierce partisan battle since its creation in Dodd-Frank. The agency was designed by Sen. Elizabeth Warren Elizabeth WarrenOvernight Defense: Appeals court revives House lawsuit against military funding for border wall | Dems push for limits on transferring military gear to police | Lawmakers ask for IG probe into Pentagon's use of COVID-19 funds On The Money: Half of states deplete funds for Trump's 0 unemployment expansion | EU appealing ruling in Apple tax case | House Democrats include more aid for airlines in coronavirus package Warren, Khanna request IG investigation into Pentagon's use of coronavirus funds MORE (D-Mass.), then an Obama adviser, to be a vigorous, independent check on banks, lenders, credit card companies and debt collectors.

The CFPB’s aggressive oversight and regulation under former director Richard Cordray Richard Adams CordrayConsumer bureau revokes payday lending restrictions Supreme Court ruling could unleash new legal challenges to consumer bureau Supreme Court rules consumer bureau director can be fired at will MORE (D) elated Democrats and financial sector critics while infuriating the industry and its GOP allies.

The bureau has since loosened its hold on the industry under Trump-appointed officials, and said it will not defend its structure in Supreme Court arguments. It’s unclear if the House Democratic caucus or CFPB private sector allies will defend the bureau in court.

Updated at 3:45 p.m.