FHFA, Like CFPB, Finds Its Constitutionality in Doubt
By Hannah Lang
The question of what are appropriate checks on independent regulators continues to be a focus for courts around the country, but the issue has now extended way beyond the Consumer Financial Protection Bureau. A three-judge panel for the U.S. Court of Appeals has ruled that the Fifth Circuit ruled that the Federal Housing Finance Agency’s leadership structure — with a single director at the top who can be fired only for cause — is unconstitutional. The decision — which could be appealed to the full panel of Fifth Circuit judges or the Supreme Court — echoes a similar ruling in 2016 written by Judge Brett Kavanaugh, of the D.C. Circuit, that the CFPB’s single-director structure was unconstitutional. Yet others note that the ruling may not have immediate impact on the current FHFA — Watt is expected to serve out his term without controversy — and the decision did not appear to call into question any FHFA rule or other policy. “The important takeaway is that nothing in this decision impedes FHFA’s ability to do whatever it wants under Mel Watt or a future director, while the broader constitutional challenge question continues,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics. …“The Fifth Circuit ruled unequivocally that regardless of its views on the constitutionality of FHFA’s structure, its actions as an independent agency are proper and may continue as they did,” Petrou said. “There’s no diminution of FHFA’s rulemaking authority, period.” …However, in the Texas court’s opinion, the panel of judges acknowledged the differences between the CFPB and FHFA as independent agencies. “Unlike CFPB, which was politicized at its birth, FHFA, which has a similar legal structure as the CFPB, was highly bipartisan,” said Klein. The differences between the two as financial regulators in addition to more impending litigation means that this ruling doesn’t threaten the CFPB — at least yet, said Petrou. “This is a decision about FHFA with implications for CFPB, but not a decision with direct applicability in my opinion,” she said.