The effects of the 2008 housing crisis decimated the American economy. And at the height of the crisis, nearly half of the nation’s mortgage debt was owned or guaranteed by Fannie Mae and Freddie Mac. But to compete with Wall Street and increase profits, Fannie and Freddie had over-invested in risky mortgages and securities, ultimately requiring billions in federal bailouts. These practices were made possible by the lax oversight of a weak and politically dependent government regulator. To correct that problem, Congress established a new agency to oversee Fannie and Freddie, the Federal Housing Finance Agency (FHFA). Congress further provided that the FHFA’s director could be fired by the president for good cause but not for policy disagreements alone—ensuring accountability while shielding the agency from undue political pressure aimed at weakening oversight.

In Collins v. Mnuchin, the FHFA’s leadership structure was challenged in the U.S. Court of Appeals for the Fifth Circuit as an unconstitutional infringement on presidential power.  In a 9-7 decision, the en banc Fifth Circuit held that the leadership structure of the FHFA violates the separation of powers because, according to the majority, the President has less ability to influence the policies of an independent agency led by a single Director than he does the policies of independent agencies led by boards or commissions.  Judge Higginson’s dissent described “these assertions [as] little more than debatable empirical claims—hardly the firm footing judges need to take the bold step of declaring Congress’s agency design choices unconstitutional.”

Following its decision in Seila Law LLC v. Consumer Financial Protection Bureau (CFPB), in which the Court held that the leadership structure of the CFPB violates the separation of powers, the Supreme Court granted certiorari in Collins v. Mnuchin.  CAC filed an amicus brief in support of the FHFA’s constitutionality.

In our brief, we first explained that the Constitution gives Congress broad power to shape the structure of federal agencies and to give their leaders a degree of independence from presidential policy control.  As we show, the Framers deliberately provided such flexibility to Congress so that future lawmakers could respond effectively to new and unforeseen national crises.  Our brief then describes how Congress exercised this discretion amidst the housing crisis of 2008, concluding that a new regulator with some degree of independence was needed to help preserve the security of the housing finance system.

Finally, our brief explained that the Supreme Court has long recognized that the heads of regulatory agencies may be shielded from firing without cause.  Although the Supreme Court held in Seila Law that a for-cause restriction on the President’s power to remove the CFPB Director violates the separation of powers, that case does not dictate the outcome here.  The FHFA, we argued, is materially different from the CFPB for two reasons.  First, the FHFA does not wield regulatory or enforcement authority comparable to the CFPB, and is instead focused on the regulation of 13 Government-sponsored enterprises alone.  Second, unlike the CFPB, the FHFA has no authority to regulate purely private actors; rather, it regulates entities like Fannie and Freddie that were created by Congress, implicitly subsidized by Congress, and regulated by Congress.  For these reasons, our brief argued that Congress may choose to impose a for-cause restriction on the President’s power to remove the FHFA’s Director.

In June 2021, relying on its decision in Seila Law, the Supreme Court held that the FHFA’s leadership structure violates the separation of powers.