A Tale of Two Agencies: The Travails of the CFPB and FHFA — Chapter 2: The Seila Law Decision

By | July 8, 2020

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—eighteen laws that were in force at the time of enactment and additional consumer protection standards in Dodd-Frank itself.[3]

In a prior post on The FinReg Blog,[4] I reviewed one pending Supreme Court case (Seila Law v CFPB) and one potential one (Collins v Mnuchin) that questioned the constitutional authority of the Director of each agency.  Plaintiffs in each case argued that the provisions in each agency’s enabling statute—establishing a single director serving a fixed term of five years and removable only for cause—is an unconstitutional encroachment on the President’s Article II powers to see that the laws are faithfully executed.  As each of the agencies in question has been in existence for over a decade, my prior post noted that a determination of unconstitutionality would bring with it important questions about remedies.

On June 29, 2020, the Supreme Court issued an opinion in Seila Law[5] that addressed the constitutional validity of the CFPB and its Director and the remedial consequences of a determination of unconstitutionality. This post will discuss the Seila Law decision and its implications for both the CFPB and FHFA.

The Seila Law Decision

The Seila Law decision comprises three opinions addressing the two issues noted above.  Justice Roberts, joined by Justices Alito and Kavanaugh, delivered the opinion of the Court, summarized as follows in its introduction:

We therefore hold that the structure of the CFPB violates the separation of powers. We go on to hold that the CFPB Director’s removal protection is severable from the other statutory provisions bearing on the CFPB’s authority. The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will.[6]

The Court vacated the judgment of the Ninth Circuit Court of Appeals that affirmed the CFPB’s issuance of a civil injunctive order to Seila Law and remanded the case to that court “for further proceedings consistent with this opinion.”[7]

In a separate opinion, Justice Thomas, joined by Justice Gorsuch, concurred in the Court’s opinion on the Director’s tenure but dissented with regard to the appropriate remedy.[8] The remedy proposed by Justices Thomas and Gorsuch for the constitutional breach would be to deny the CFPB petition to enforce the civil investigative demand that was the gravamen of the litigation.[9]  Had the majority agreed with the dissent’s opinion on remedies, the CFPB would have been out of business unless, and until, Congress amended its enabling legislation.

Justice Kagan, joined by Justices Breyer, Ginsburg, and Sotomayor, dissented on the constitutionality of the CFPB Director’s tenure, arguing that Dodd-Frank was enacted by duly elected Congressional representatives and signed by a duly elected President in the constitutionally authorized exercise of their powers.[10]  They argued that the majority’s “general rule” of executive control of administrative agencies is not found in the Constitution and that the constitutional limitations on such power asserted by the majority are, “made up for the occasion—gerrymandered so the CFPB falls outside them.” [11]  Justice Kagan and her colleagues in dissent joined the Chief Justice’s opinion on remedies without comment, no doubt to prevent the train wreck that the opinion on constitutionality might have caused.

The decision in Seila Law is judicial legislation masquerading as judicial review. As the amicus brief filed with the Court by three Republican United State Senators pointed out, “‘Severing’ an unconstitutional provision from a broader statute or section is necessarily a legislative act. The end result is always a law that Congress did not pass and that the President did not sign.”[12] While I respectfully disagree with the Senators’ proposal for a remedy—refusal to enforce the acts of an unconstitutionally seated Director—I think their statement of the constitutional problem created by judicial “blue penciling” is precisely right.  With Justice Kagan and her colleagues in dissent, I would submit that the better course to avoid undue judicial incursion into the legislative process would have been to deny the petition for certiorari. Sad to say, the Court’s majority didn’t agree.

So, what has the Court done in this legislative effort?  A good place to start is to note what the decision did not do.  It did not repeal Dodd-Frank generally, nor Title X of that statute in particular.  It did not repeal Title X indirectly by adopting the remedial proposal of the Thomas / Gorsuch dissent.  Although expressing concern about the funding of the CFPB through the Federal Reserve rather than Congressional appropriation, the Court did not use funding as a basis for its determination of the agency’s Constitutional validity, thus impliedly ratifying such funding.[13] Seila Law revises Title X but leaves the statute and the CFPB intact.

Actions taken by the CFPB Director after Seila Law regarding Director tenure will not be contestable on constitutional grounds. But what about the action taken by the CFPB—issuance of a civil investigative demand—in the case before the Court?  Not to mention the enforcement actions that the majority opinion notes have resulted in over $11 billion in relief for over 25 million consumers?[14]    The Court does not extend its legislative reach to ratification of the Director’s actions in either the case before it or of prior actions. By rejecting the remedy proposed by Justices Thomas and Gorsuch, it ratifies by indirection.[15] Time and the Court will tell whether this is so.

 In amending the Director’s tenure provision of Title X, the Court also deletes, by implication, the reference in the enabling statute to the CFPB as an “independent bureau”.[16]  The CFPB Director is declared to be an executive officer of the United States and the CFPB an executive agency.  This amendment to the statute makes clear that a change in Administration after the upcoming election will result in a change in agency leadership (subject, of course, to Senate consent).  As mentioned above, the agency’s financing arrangements remain independent of Congressional appropriation, which has been the source of agency evisceration and ineffectiveness in the past. For those of us who support a robust CFPB, this is a silver lining.

Implications of Seila Law for FHFA

As noted in my prior post, the FHFA Director’s tenure under HERA is alike in all material respects to that of the CFPB Director in Dodd-Frank. This is confirmed by Justice Roberts’ referring to that fact in his majority opinion, and to Collins v Mnuchin as a case where the constitutionality of tenure is contested.[17]  The Court currently has before it two companion petitions for certiorari arising from the Fifth Circuit’s decision in Collins: (i) a petition by plaintiffs seeking a reversal of the Circuit Court’s determination that remedies for the constitutional invalidity of the FHFA  Director’s tenure are prospective only; and (ii) a petition by the United States Department of the Treasury and FHFA seeking a reversal of the Circuit Court’s ruling that the FHFA’s entry into a financing arrangement with Treasury for Fannie Mae and Freddie Mac, known as the Net Worth Sweep, was ultra vires under HERA.

The decision in Seila Law almost certainly also decides the constitutional issues in Collins v Mnuchin, both as to Director tenure and remedies.  The Fifth Circuit’s decision that the FHFA Director is not constitutionally seated will be affirmed, as will its decision that such infirmity does not lead to relief for plaintiffs.  The lower court’s decision regarding the Net Worth Sweep, on the other hand, is statutory, big ticket, and in conflict with other circuits, so the Supreme Court may take it up separately or, perhaps, in concert with plaintiffs’ petition.  Billions of dollars and the future of Fannie Mae, Freddie Mac, and US housing finance are all in the balance.


And so, Chapter 2 of the Tale of Two Agencies has concluded.  In Seila Law, the Supreme Court has issued an unnecessary and logically challenged opinion in a case it did not have to take.  That said, the decision’s illogic—ratifying actions by an officer of the government that it has determined to be unconstitutionally seated—has kept it from doing much harm.

Chapter 3 of the tale may include follow-on cases against the CFPB where deep-pocketed petitioners probe the finality of the Seila Law decision – agency finances and ratification of prior acts.  It will certainly include a ruling on the constitutionality of the FHFA, either directly or by denial of certiorari to petitioners.   It should – and I hope will – include resolution of the statutory issues in Collins by reversing the Fifth Circuit’s decision on the FHFA’s conduct as conservator of Fannie May and Freddie Mac.


Joseph A. Smith, Jr. is a senior fellow at the Global Financial Markets Center at Duke Law and the former North Carolina Commissioner of Banks.


[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] Seila Law, infra note 5, p. 4.

[4] https://sites.law.duke.edu/thefinregblog/2020/01/09/a-tale-of-two-agencies-the-travails-of-the-cfpb-and-fhfa/

[5] Seila Law LLC v Consumer Financial Protection Bureau, 591 US _______ (2020).

[6] Ibid (opinion of Justice Roberts), p. 3.

[7] Ibid, p. 37.

[8] Ibid (opinion of Justice Thomas)

[9] Ibid, p. 14.

[10] Ibid (opinion of Justice Kagan).

[11] Ibid Ibid, p.3. It is of at least passing interest that Justice Kagan cites among academic literature on Presidential control of agencies:  Kagan, Presidential Administration, 114 Harv. L. Rev. 2245, 2331–2346 (2001) (generally favoring presidential control over agencies): Ibid, p. 2. 

[12] Seila, op cit. note 5, Amicus Brief of Senators Mike Lee, James Lankford and M. Michael Rounds, p. 2.

[13] At p. 24: “The CFPB’s receipt of funds outside the appropriations process further aggravates the agency’s threat to Presidential control.”  

[14] Roberts opinion, p. 5 (citing the CFPB Financial Report for 2015).

[15] It is of at least passing interest that Justice Roberts rejects a “tracing” argument for purposes of Article III standing.  Roberts opinion, pp. 8-10.  His opinion goes on to essentially cut off remedies for the beneficiary of the decision.

[16] 12 USC 5491(a).

[17] Roberts opinion p. 20

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