The court debated if precedent from the Seila Law decision on the CFPB’s leadership structure has legs in this case, focused on the Federal Housing Finance Agency.
12/16/2020 11:00
On the heels of oral arguments in the Telephone Consumer Protection Act Facebook v. Duguid case last week, the U.S. Supreme Court tackled the leadership structure of the Federal Housing Finance Agency (FHFA) and the president’s oversight of the director in Collins v. Mnuchin.
Sound familiar?
In June, the Supreme Court ruled 5-4 in Seila Law v. Consumer Financial Protection Bureau that the CFPB’s single director structure is unconstitutional, but the provision allowing the removal of the CFPB director only “for cause” is severable from the rest of the statute. As such, the CFPB will continue to exist but its construct will change, and it will be easier to select CFPB leadership based on political affiliation, ACA International previously reported.
Plaintiffs in Collins v. Mnuchin asked the Supreme Court to consider the outcome in the case if the FHFA’s structure is ruled to be unconstitutional after the court’s decision in Seila Law, ACA previously reported.
However, the precedent from Seila Law and role of the FHFA’s leadership structure didn’t seem to have as much standing in the Collins v. Mnuchin case.
The case stems from a lawsuit from Fannie Mae and Freddie Mac shareholders fighting a 2012 agreement between the FHFA, which regulates the mortgage companies, and the U.S. Department of the Treasury.
According to a case preview from Amy Howe, a reporter for the SCOTUS blog, “in its role as conservator, the FHFA entered into a 2008 agreement with the Treasury Department in which the department would provide up to $100 billion in funding for Fannie Mae and Freddie Mac in exchange for compensation that included stock, dividends tied to the amount of money invested in the company, and priority over the other shareholders in recovering its investment. In August 2012, the FHFA and Treasury changed the agreement to require Fannie Mae and Freddie Mac to pay dividends tied to the companies’ net worth, rather than the size of the Treasury Department’s investment. The plaintiffs in the case now before the Supreme Court contend that the FHFA knew that Fannie Mae and Freddie Mac ‘were on the verge of generating huge profits, far in excess of the dividends owed’ under the current system.”
During oral arguments in the case Dec. 9, the Supreme Court debated if the agreement lacked standing because of the constitutionality of the FHFA’s leadership structure. The attorney for the plaintiffs say it does, but the opposing side argued that it doesn’t because the FHFA had an acting director at the time, according to the SCOTUS blog.
Howe reports that “the question whether statutory restrictions on the president’s ability to remove the head of an executive agency violate the Constitution’s separation of powers is one with which the justices have recent experience. In June, the court struck down a provision of the Dodd-Frank Act that permitted the president to fire the head of the Consumer Financial Protection Bureau only for ‘inefficiency, neglect of duty, or malfeasance in office.’ Because the head of the FHFA can only be removed by the president ‘for cause,’ the shareholders contend, that structure is also unconstitutional – and the 2012 agreement should be invalidated.
“Several justices questioned whether the court needed to weigh in on the constitutionality of the FHFA’s removal restrictions at all, when the decision to enter into the 2012 agreement was made by an acting director, who could be removed by the president for any reason. But even if the 2012 agreement was negotiated by an acting director, some justices then suggested, the court might still need to determine whether the removal restrictions are constitutional because a director was later confirmed, and that director took action pursuant to the 2012 agreement.”
During the oral argument, some justices raised the point that the FHFA and the CFPB are different in their level of power and therefore the Seila Law case precedent shouldn’t apply, according to Howe.
A decision is expected in 2021.