Consumer Finance Litigation

On June 23, 2021, the Supreme Court of the United States (“Supreme Court”) ruled that the director of the Federal Housing Finance Agency (“FHFA”) must be removable and that the tenure protections put in place by the 2008 Housing and Economic Recovery Act are unconstitutional. Specifically, the Supreme Court’s decision in Collins v. Yellen holds that the “for cause” removal provisions infringed on the President’s constitutional authority to remove the head of an agency with a single director.

However, the Supreme Court did not find grounds to set aside any of the FHFA’s actions undertaken during the period when its director was impermissibly insulated from executive branch oversight, holding:

"Although the statute unconstitutionally limited the president's authority to remove the confirmed directors, there was no constitutional defect in the statutorily prescribed method of appointment to that office. As a result, there is no reason to regard any of the actions taken by the FHFA in relation to the third amendment as void."

Hours after the decision, the Biden administration promptly sacked the FHFA’s director, Mark Calabria. Mr. Calabria was one of the last remaining Trump administration holdovers still leading a federal agency. In his place, the President appointed Sandra L. Thompson, to serve on an acting basis.  Ms. Thompson was the deputy director at the FHFA in charge of the FHFA’s Housing Mission and Goals.

One of the FHFA’s most prominent roles has been its ongoing conservatorship of Fannie Mae and Freddie Mac which began in 2008. In 2012, the FHFA allowed over $200 billion dollars in dividends from Fannie and Freddie to be paid to the Treasury Department, as opposed to investors, prompting a long-running legal battle that ultimately resulted in yesterday’s Supreme Court decision.  While not awarding Fannie and Freddie’s investors any monetary relief, the Supreme Court left open the possibility of such relief in the future, noting that it is "possible for an unconstitutional provision to inflict compensable harm."

The Supreme Court’s rejection of the FHFA’s structure does not come as a surprise. A similar tenure protection provision once protected the director of the Consumer Financial Protection Bureau from removal before it was struck down by the Supreme Court last year. That prompted the FHFA to largely abandon attempts to defend the analogous legal protections Congress put in place regarding the FHFA’s directorship.

The change in leadership at the FHFA is sure to reignite the ongoing debate about GSE reform and regulation, as the Biden administration ponders who will direct the FHFA in the long term.