The Supreme Court issued a decision on Monday saying the structure of the Consumer Financial Protection Bureau is unconstitutional but stopped short of abolishing the watchdog agency.
Instead, the court will allow the head of the agency to be fired at will, rather than a president having to prove “inefficiency, neglect of duty, or malfeasance in office,” as outlined in the 2010 Dodd–Frank law that established the CFPB.
Monday’s ruling will have an impact beyond the CFPB, currently overseen by Director Kathleen Kraninger. The biggest fallout is likely to be at the Federal Housing Finance Agency, created by Congress in 2008 with a similar structure that also has been challenged in court.
In Monday’s ruling, the justices adopted the solution used earlier by a federal appeals court deciding on the FHFA’s structure. The lower court left the agency intact while permitting the director to be removed at will. Monday’s decision knocks out any chance to overturn that FHFA ruling.
The ability to remove the FHFA’s director could impede the agency’s efforts to free Fannie Mae and Freddie Mac from government conservatorship if President Donald Trump loses the election in November.
The election of former Vice President Joe Biden, the presumptive Democratic nominee, would mean he could fire Trump appointee Mark Calabria before the current FHFA director completes the steps required to recapitalize the mortgage giants and release them from 12 years of government conservatorship.
“I respect the Supreme Court’s decision,” Calabria said in a statement emailed to HousingWire. “This ruling does not directly affect the constitutionality of FHFA, including the for-cause removal provision.”
Combined, Fannie Mae and Freddie Mac guarantee more than half of the outstanding $11 trillion of U.S. home loans.
“We believe this ruling will influence whether Fannie Mae and Freddie Mac are able to exit conservatorship,” said Jaret Seiberg, managing director of Cowen Washington Research Group. Monday’s ruling “means the election will determine if Mark Calabria continues as FHFA director or if the Biden administration can name its own director who may have a different view on whether the conservatorship should end.”
Polling data currently has Biden ahead of Trump, with a sizable lead even in so-called swing states.
[Update: This article has been updated with a comment from FHFA Director Mark Calabria.]