Like Bureau of Consumer Financial Protection, Court Declares FHFA Unconstitutional

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The Bureau of Consumer Financial Protection (Bureau), created largely by Democratic politicians in the wake of the 2008-10 financial crisis, has not been the most popular government agency under the current administration. That said, a June court decision declared that the agency itself is, in fact, not very democratic.

The controversial decision came from District Judge Loretta Preska of the New York’s Southern District who declared the Bureau to be unconstitutional based on its single directorship structure. (The current structure features a director who has full control over decisions with no requirement of a vote or a consensus from other colleagues or parties).

This week, the Court of Appeals for the Fifth Circuit made a ruling against the Federal Housing Finance Agency (FHFA) for the same reason – because it deemed the agency to be unconstitutional based on its single directorship structure.

FHFA Structure

The FHFA was established by the 2008 Housing and Economic Recovery Act to ensure that Fannie Mae, Freddie Mac and the Federal Home Loan Bank System are operating in a safe and sound manner so they can serve as a reliable source of liquidity and funding for housing finance and community investment.

The defense for this decision against the FHFA cites heavily from a 2016 ruling, written by Supreme Court Justice nominee Brett Kavanaugh, that asserts that the Bureau is unconstitutional in large part because the director cannot even be removed the president. Part of this week’s FHFA decision is as follows:

“Congress encased the FHFA in so many layers of insulation—by limiting the President’s power to remove and replace the FHFA’s leadership, exempting the Agency’s funding from the normal appropriations process, and establishing no formal mechanism for the Executive Branch to control the Agency’s activities—that the end ‘result is a[n] [Agency] that is not accountable to the President.’ The President has been ‘stripped of the power [the Supreme Court’s] precedents have preserved, and his ability to execute the laws—by holding his subordinates accountable for their conduct—[has been] impaired.'” 

The 2016 decision decreeing that the Bureau is unconstitutional is similar:

“Other than the President, the Director of the Bureau is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power. That is not an overstatement. What about the Speaker of the House, you might ask? The Speaker can pass legislation only if 218 Members agree. The Senate Majority Leader? The Leader needs 60 Senators to invoke cloture, and needs a majority of Senators (usually 51 Senators or 50 plus the Vice President) to approve a law or nomination. The Chief Justice? The Chief Justice must obtain four other Justices’ votes for his or her position to prevail…”

Clearly, some judges feel that the Bureau and the FHFA are unconstitutionally formed. Whether these agencies will change their structure in response to these decisions is unclear.

Last modified: July 29, 2018
Todd Stone

Category: Legal Briefs

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