A Tale of Two Agencies: The Travails of the CFPB and FHFA

By | January 9, 2020

Courtesy of Joseph A. Smith, Jr.

The Federal Housing Finance Agency (FHFA) and Consumer Financial Protection Bureau (CFPB) were established to address distinct aspects of the Global Financial Crisis. The Home Ownership and Economic Recovery Act of 2008 (HERA)[1] created the FHFA to provide for enhanced and rigorous supervision of Fannie Mae and Freddie Mac. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)[2] created the CFPB in 2010 to regulate and enforce a variety of consumer protection laws—both the laws that were in force at the time of enactment and the new laws that Dodd-Frank created.

Each agency has made a significant impact—the FHFA through its conservatorship of Fannie Mae and Freddie Mac; the CFPB through a robust regulatory and enforcement program. Yet, both agencies are currently confronting serious challenges to their authority. These challenges come both from private parties adverse to the agencies and from the Government of which they are a part. And they bring with them novel and important questions about remedies regarding actions taken by regulatory officials without constitutional authority.

Constitutional Challenges to the FHFA and CFPB

The constitutional challenges to the FHFA and CFPB arise from the fact that both agencies are headed by a single Director, who is appointed by the President, confirmed by the Senate, and serves for a term of five years which is subject to removal only for cause.[3] This tenure of office is different from other federal financial regulatory agencies and, critics argue, from other federal agencies generally. The Comptroller of the Currency, who heads an agency housed in the Treasury Department, is appointed by the President, confirmed by the Senate, and serves a term of five years “unless sooner removed by the President, upon reasons to be communicated by him to the Senate.”[4] The Chairman, Vice Chairman, and Director of the Federal Deposit Insurance Corporation are each subject to Presidential appointment, Senate approval, and serve statutorily specified terms.[5] While there are no removal provisions in the Federal Deposit Insurance Act for these officials, that statute provides that the board may not have more than three members (out of five total) who are from the same political party.[6]

Actions by the Directors of the FHFA and CFPB have been challenged as unconstitutional because, it is alleged, the Directors’ tenure of office violates the Constitution. The argument goes that the inability of the President to remove the Director at will improperly impinges on the President’s authority under Article II to ensure that the laws of the United States are faithfully executed.The challengers contrast the Directors’ tenure to the “at will” tenure of executive agency heads or the multi-member commission structure of other independent agencies. It is argued that a single agency director removable only for cause has undue and unconstitutional freedom from accountability to the President. These claims have been presented, without success, to federal trial and appellate courts but not to the Supreme Court.[7]

That is about to change.On October 18, 2019, the Supreme Court granted a petition for certiorari in the case of Seila Law v. CFPB (Seila Law) to address the constitutionality of the CFPB’s Director’s tenure of office.[8] In addition, the Court is considering another certiorari petition from a decision by the Fifth Circuit Court of Appeals, in the case of Collins v. Mnuchin (Collins), that the tenure of the FHFA’s Director is unconstitutional.[9]

Seila Law and Collins

Seila Law is an appeal from the Ninth Circuit Court of Appeals’ affirmation in substantial part of the CFPB’s issuance of a civil investigative demand. The demand is part of an investigation into a debt adjustment operation of Seila Law LLC. It does not involve a final agency action by the CFPB. Despite the fact that the CFPB had prevailed on the constitutional issue at the appellate court level, the Solicitor General, acting on behalf of the CFPB and under instruction of the agency’s Director, submitted a response to plaintiff’s petition for certiorari that urged the Supreme Court to grant the petition and to determine that the CFPB Director’s tenure is unconstitutional.[10]

Collins, by contrast, involves a final agency action by the FHFA as conservator of Fannie Mae and Freddie Mac (Enterprises). The FHFA entered into a modification of financing agreements with the United States Treasury that resulted in a sweep by Treasury of the net worth (less a minimal reserve) of each of the Enterprises (Net Worth Sweep). Payments under the Net Worth Sweep arguably went beyond the amounts necessary to repay the Treasury for its extensions of credit to the Enterprises, thus reducing or eliminating the equity of their shareholders and keeping them on a short leash pending Congressional action to restructure the housing finance market.

Plaintiffs in Collins are shareholders of Fannie Mae and Freddie Mac. They have sued the Treasury and the FHFA claiming, among other things, that the FHFA’s agreement to the Net Worth Sweep exceeded the agency’s statutory authority as conservator. The plaintiffs further claimed that the Director of the FHFA, who allegedly acted ultra vires, held his position in violation of the United States Constitution. Therefore, the Director’s authorization of the Net Worth Sweep was invalid and the agreement under which the Net Worth Sweep was instituted should be rescinded.

After significant prior proceedings, the Fifth Circuit Court of Appeals, sitting en banc, determined that the plaintiffs’ statutory claim of the FHFA’s ultra vires action stated a claim on which relief could be granted, reversing a trial court determination to the contrary. The Court further found that the HERA provisions regarding the FHFA Director’s tenure were unconstitutional and directed the trial court to enter judgment to that effect. The Court then determined that any relief with respect to the constitutional claim would be prospective only.  The case was remanded for further proceedings.[11]

Plaintiffs in Collins have petitioned for certiorari on the ground that the Fifth Circuit Court of Appeals did not provide for appropriate remediation of the constitutional breach.  Defendants have separately sought certiorari to reverse the Fifth Circuit’s finding that the Net Worth Sweep was ultra vires, based on anti-injunction and succession provisions of the HERA.[12] The Court has not yet decided whether to grant either of these petitions.

Seila Law and Collins are anomalous, if not unique, in one respect: each is being appealed by a party that won at the appellate court level. So why did they appeal?

Motivation for the Appeals

The plaintiffs in Collins have appealed because, although a majority of the Fifth Circuit ruled for them on the unconstitutionality of the Director’s tenure, a separate majority held that any relief would be prospective only. In doing so, the appellate court effectively denied plaintiffs the remedy they sought based on such unconstitutionality: rescission of the amendment to the Treasury financing agreements that created the Net Worth Sweep.

Seila Law, on the other hand, appears to be motivated by the Administration changing its view about the CFPB. In June 2017, the Administration issued a white paper on financial regulation that included a detailed and critical analysis of the CFPB. The white paper quotes an opinion of then-Judge Brett Kavanaugh, when on the Court of Appeals for the DC Circuit, that the Director’s tenure is unconstitutional in support of its policy critique of the CFPB as insufficiently accountable to either the President or Congress. However, its specific recommendations assign to Congress the tasks of: (i) amending the CFPB’s enabling legislation to repeal the “for cause” termination clause or replace that office with a commission structure; and (ii) subjecting the agency to Congressional and administrative budgetary restrictions. Such legislative proposals have either not been pursued by the Administration or have not been successful, if pursued. It appears that the Administration is using litigation instituted by a private party as a vehicle to achieve its policy objective.

The Administration’s views about the FHFA are arguably more nuanced. In September, 2019, Treasury issued a white paper on housing finance reform that says little or nothing about the FHFA’s organizational structure; rather, it recommends Congressional action to restructure the Enterprises, increase competition in the housing finance market, and reduce Federal Governmental exposure to losses. It also recommends administrative action by the FHFA to, among other things, end the Net Worth Sweep. The FHFA has recently taken administrative steps consistent with Treasury’s recommendations. Even here, there appears to have been something of a change of view by the Administration: in Collins, Treasury has conceded the claim that the FHFA Director’s tenure is unconstitutional, leaving the agency to fend for itself.

Given the similarity of the tenure clauses in the two relevant enabling statutes, it is interesting to note that the Administration is seeking a ruling of unconstitutional tenure in Seila Law but resisting such a determination in Collins. In a response to the petition for certiorari in Collins, the Solicitor General argues that the petition should not be granted as to the constitutional claim because (i) plaintiffs won at the appellate level (hence an appeal is inappropriate from them); (ii) Seila Law will decide the issue of the constitutionality of tenure; and (iii) the Fifth Circuit’s determination of the appropriate remedies was correct. The Solicitor General goes on to argue that the Court should grant defendants’ petition for certiorari as to the Fifth Circuit’s decision on the statutory (ultra vires) claim on the ground that it was incorrectly decided, and should follow the decisions of other appellate courts denying such claims. In sum, the Solicitor General proposes that Collins be resolved on statutory grounds without the need of addressing the constitutional issue. This line of argument leaves the issue of consequences open for the FHFA if Seila results in a determination of unconstitutionality.[13]

Potential Consequences

What would be the consequences for the CFPB if the Supreme Court makes such a determination? The Solicitor General’s brief in Seila and statements from the CFPB in connection with it, say that such a determination would be a matter of little or manageable practical consequence. The provisions of the Dodd-Frank Act creating the CFPB have a “savings clause” that provides that finding any provision as unconstitutional does not invalidate the rest of the statute. The Solicitor General and the agency argue that the Supreme Court, should, following the statute and Free Enterprise Foundation v. PCAOB, “blue pencil” the “without cause” phrase, thus making the CFPB a more traditional executive agency and leaving the remainder of the statute unaffected. This argument might be tenable if the CFPB had just come into existence, but that is not the case. The agency has been operating for eight years. It has taken innumerable actions through its Director, both regulatory and enforcement. Such actions include the assessment of billions of dollars in fines, issuance of hundreds (if not thousands) of pages of regulations, and the commencement and prosecution of hundreds (if not thousands) of investigations and civil litigation. While the Court may resolve the alleged issue of constitutional infirmity going forward, it is not clear what effect such a determination—that the CFPB has been constitutionally flawed from its inception—will have on actions taken to date.

The same issues confront the FHFA, whether its Director’s tenure is invalidated now or later.  The alleged constitutional defect addressed in Collins was present from the passage of HERA and has been present throughout the FHFA’s eleven-year history. Blue penciling the tenure provision of the enabling legislation does not delete the legislation’s statement that the FHFA is an “independent” Government agency. Nor does it delete the legislation’s provisions under which the FHFA acts through the Director, including the appointment of the agency as conservator. If the Director was unconstitutionally seated in a way that invalidates actions taken in that capacity, how can the conservatorship of Fannie Mae and Freddie Mac withstand scrutiny?

I have good company in my concern about judicial alteration of a statute. In an amicus brief, three Republican United States Senators also oppose blue penciling.  They argue that severing an unconstitutional provision from a statute is judicial legislation, resulting in a law the Congress did not pass and the President did not sign. While I agree with this assessment, I respectfully part company from the Senators when it comes to proposed remedies for unconstitutionality. They argue that the appropriate remedy is provided by the Administrative Procedure Act: enjoining the enforcement of the civil investigative demand that is the subject of the case. Since the alleged constitutional defects of the CFPB and FHFA relate to the structure and operations of the agencies, this proposed remedy would mean that no action of either agency could withstand challenge under the APA. In other words, the agencies would be out of business unless, and until, Congress corrected the defect.


Seila Law and Collins are cases that need not be before the Supreme Court. Each could, and in my view should, have been decided on other grounds by lower courts. Each invites the Court to restructure agencies of Government that have been in existence for years. The argument that the alleged constitutional infirmity in each agency can be cured by merely “blue penciling” the offending provision with little practical consequence is a judicial fiction; the logic of the plaintiffs’ arguments goes much further, undermining everything the agencies have done to date, and perhaps even their existence as functioning arms of government.

The FHFA and CFPB may or may not have the best or most desirable organizational structures from a policy perspective, but those structures were debated in public and enacted by elected representatives of the people. There are good policy arguments to have each agency, or both, reconstituted as more traditional executive agencies or more traditional independent commissions with bipartisan membership. The appropriate place to have those debates is where the process started—in Congress.


[1]Housing and Economic Recovery Act of 2008. (PUBLIC LAW 110–289—JULY 30, 2008) Available at:https://www.congress.gov/110/plaws/publ289/PLAW-110publ289.pdf

[2]Dodd-Frank Wall Street Reform and Consumer Protection Act. (PUBLIC LAW 111–203—JULY 21, 2010), Title X. Available at: https://www.govinfo.gov/content/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf.

[3]HERA, op cit. Note 1, §1312(b); Dodd-Frank, op cit. Note 2, §1011(b), 12 USC 5491(b). The Director of FHFA is removable “for cause by the President.” The CFPB Director is removable for “inefficiency, neglect of duty or malfeasance in office.”

[4]National Bank Act, 12 USC § 2.

[5]16 USC § 1812.


[7]A petition for a writ of certiorari as to the constitutionality of tenure of the CFPB’s Director, among other issues has previously been denied.  State National Bank of Big Spring v. Mnuchin (18-307; January 14, 2019). It is of at least passing interest that the petition in this case included in its arguments allegation of a split among the circuits: the decision of the DC Circuit in PHH v. CFPB affirming constitutionality on the one handand the Fifth Circuit in an opinion rendered in the early stages of Collins v. Mnuchin denying it on the other.

[8]Seila Law LLC v. Consumer Financial Protection Bureau (19-7; filed June 28, 2018).

[9]Collins v. Mnuchin (19-422).  Available at: https://www.scotusblog.com/case-files/cases/collins-v-mnuchin/.

[10]Seila Law v. CFPB, Brief for Respondent.  Available at: https://www.supremecourt.gov/DocketPDF/19/19-7/116040/20190917144324154_19-7%20Seila%20Law.pdf.

[11]Collins v. Mnuchin, 938 F.3d 553, 563 (5th Cir. 2019).

[12]Mnuchin v. Collins (19-563; filed October 25, 2019). Available at: https://www.supremecourt.gov/DocketPDF/19/19-563/120380/20191025201313249_Mnuchin%20FINAL.pdf.

[13]It is of at least passing interest that counsel for the plaintiffs in Collins has filed an amicus brief in Seila.

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