The en banc Fifth Circuit has ruled in Collins v. Mnuchin that the FHFA is unconstitutionally structured because it is excessively insulated from Executive Branch oversight and that the appropriate remedy for the constitutional violation is to sever the provision of the Housing and Economic Recovery Act of 2008 (HERA) that only allows the President to remove the FHFA Director “for cause.”

The issue of the CFPB’s constitutionality is currently before the Fifth Circuit in the interlocutory appeal of All American Check Cashing from the district court’s ruling upholding the CFPB’s constitutionality.  Oral argument was held in March 2019 and no decision has yet been issued.  However, having asked the parties at oral argument whether it should hold its decision until the en banc court issued its decision in Collins, the Fifth Circuit panel could soon issue a decision in All American Check Cashing.  

The en banc court reinstated the portion of the opinion of the Fifth Circuit panel in Collins which held that the FHFA’s structure is unconstitutional.  In doing so, the en banc court observed that the panel had “distinguishe[d] the D.C. Circuit’s PHH decision.”  The panel had stated that it was “mindful” of the D.C. Circuit’s en banc PHH decision finding the CFPB’s structure to be constitutional but that “salient distinctions between the agencies compel a contrary conclusion.”  The panel had observed that, unlike the Federal Housing Finance Oversight Board that oversees the FHFA, the Financial Stability Oversight Council can directly control the CFPB’s actions because it holds veto-power over the CFPB’s policies.  It concluded that the absence of formal oversight of the FHFA by the Executive Branch, combined with the for-cause removal provision, made the FHFA’s structure unconstitutional.

In an opinion by a different majority than the majority that reinstated the panel’s constitutionality ruling, the en banc Fifth Circuit also ruled that the appropriate remedy for the constitutional violation was to sever the for-cause removal provision from HERA.

It is unclear whether the en banc decision in Collins will result in a similar fate for the CFPB.  Two of the three judges on the All American Check Cashing panel, Judge Jerry Smith and Senior Judge Patrick Higginbotham, were appointed by President Reagan, and the third judge, Judge Stephen Higginson, was appointed by President Obama.  Judge Higginbotham did not participate in the en banc Collins decision.

Judge Smith was part of the majority that reinstated the panel ruling that the FHFA is unconstitutional but joined a separate opinion that concluded the proper remedy was to invalidate the agreement that the shareholder plaintiffs were challenging.  The separate opinion contained no discussion of severance.  Judge Higginson wrote a dissent joined by three other judges that concluded that the FHFA is constitutional under existing precedent but agreed that given the constitutionality holding of the en banc court, severing HERA’s for-cause removal provision was the appropriate remedy.  His dissent includes a footnote that states “The majority opinion expresses no disagreement with the D.C. Circuit’s analysis affirming the constitutionality of the CFPB, instead identifying “salient distinctions” between the CFPB and the FHFA.  With that lack of disagreement, I quite agree.”

Given his apparent agreement with PHH, it is likely Judge Higginson will reject All American Check Cashing’s challenge to the CFPB’s constitutionality.  It is difficult, however, to predict how Judge Smith would vote based on his participation in the en banc Collins decision.  It is unclear whether by joining the majority opinion that reinstated the panel’s ruling that the FHFA is unconstitutional and noted its distinction of PHH, Judge Smith was expressing his agreement with PHH.  While the panel indicated that it was “mindful” of PHH and did not express disagreement with PHH, it did not expressly indicate that it agreed with the D.C. Circuit’s conclusion regarding the CFPB’s constitutionality.  In any event, given that the en banc court in Collins found severance of HERA’s for-cause removal provision to be the appropriate remedy, the Fifth Circuit panel in All American Check Cashing would likely rule that Dodd-Frank’s for-cause removal provision should similarly be severed should it find the CFPB’s structure to be unconstitutional.

A ruling by the Fifth Circuit panel that the CFPB’s structure is unconstitutional would create a circuit split, thereby potentially increasing the likelihood that the U.S. Supreme Court will grant the petition for a writ of certiorari filed by Seila Law seeking review of the Ninth Circuit’s ruling that the CFPB’s structure is constitutional.  The DOJ’s response to the petition must be filed by September 18.