Collins v. Yellen

In Collins v. Yellen, the U.S. Supreme Court addressed a lawsuit by Patrick J. Collins and other preferred shareholders of Fannie Mae and Freddie Mac. They challenged the “net worth sweep” agreement between the Federal Housing Finance Agency (FHFA) and the Treasury Department, which redirected the companies’ profits to the Treasury. The plaintiffs argued that the FHFA’s structure, with a single director removable only for cause, violated the separation of powers. On June 23, 2021, the Court ruled that the for-cause removal provision was unconstitutional, as it excessively insulated the director from presidential control. However, the Court also held that the shareholders failed to demonstrate that this constitutional defect directly caused their alleged financial harm. The judgment vacated the lower court’s award of relief and remanded the case for further proceedings on the traceability of the injury.

The Supreme Court held that the FHFA’s statutory removal restriction for its director is unconstitutional under the separation of powers. However, it vacated the Fifth Circuit’s decision to grant relief and remanded the case, ruling that the shareholders must prove the unconstitutional provision caused their specific injury before any remedy can be awarded.

Whether the single-director structure of the Federal Housing Finance Agency, which limits removal by the President to “for cause” grounds, violates the Constitution’s separation of powers. Additionally, whether the shareholders are entitled to retrospective relief based on that constitutional violation.

The decision reinforced the President’s authority to remove the heads of independent agencies, impacting the structure of agencies like the Consumer Financial Protection Bureau. It also prolonged shareholder litigation over the conservatorship of Fannie Mae and Freddie Mac, shaping the executive branch’s influence over financial regulatory bodies.