The Consumer Financial Protection Bureau is a controversial organization that was established in the wake of the housing market collapse more than ten years ago and has been the target of conservatives ever since. The Supreme Court gave a signal on Tuesday that it is skeptical of an effort by the payday lending industry to undermine the CFPB.
Trade associations for payday lenders are contesting how Congress funded the bureau, which could have broad ramifications for the mortgage sector and the whole U.S. economy. The CFPB is funded through the Federal Reserve, an effort to protect it from political pressure, rather than being subjected to annual budget battles on Capitol Hill like the majority of the federal government.
Any American who has a vehicle loan, a mortgage, or a credit card could be impacted by the Supreme Court’s judgment, which is anticipated for next year. A sweeping judgement from the Supreme Court, according to the Mortgage Bankers Association, may throw the housing market “into chaos, to the detriment of all mortgage borrowers.”
Throughout the roughly 90 minutes of occasionally passionate debate, the justices seemed to pay attention to that admonition. Even several of the conservative members of the Supreme Court expressed concern about the lenders’ claim that the agreement is unconstitutional since, in their opinion, it is equivalent to writing a lifelong blank check.
Justice Brett Kavanaugh, a conservative whose vote could be crucial, remarked, “There’s nothing permanent or perpetual about this.” Congress might alter it.
U.S. Solicitor General Elizabeth Prelogar defended the Biden administration by pointing out that the federal government has traditionally relied on funding for independent organizations, dating all the way back to its inception. Supporters of the bureau claim that a decision against it might have significant repercussions for some of those organizations, including the Federal Reserve and the FDIC.
The lender’s attorney was rebuked by Justice Elena Kagan for “flying in the face of 250 years of history.”
However, a few of the more conservative justices on the court, including Justice Samuel Alito, seemed to have concerns about the funding arrangement. They questioned what would prevent a future Congress from relinquishing the “power of the purse” and granting a government agency broad discretion to choose its own budget.
The bureau was established by Congress in 2010 in part to enforce lending laws. The Federal Reserve, which receives funding from banking fees and other sources, supports the organization.
“It’s pretty unusual to have that agency…being able to request however much it wants,” Roberts added. According to him, if that arrangement eliminates Congress’ spending authority, “it significantly increases the power of the executive.”
Noel Francisco, the group’s attorney, emphasized this point most strongly.
Before the matter went to the Supreme Court, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit, which has its headquarters in Louisiana, determined that the agency had the authority to enact the regulation.
However, the appeals court determined that Congress’ method of funding the agency violated the constitutional tenet that only Congress has the authority to start spending.
The payday lending rule of the agency was in jeopardy, but so was the bureau’s very existence.
The Consumer Financial Protection Bureau: What is It?
The agency, which was Sen. Elizabeth Warren’s (D-Mass.) idea, was established to represent customers’ interests while dealing with banks. The following are a few of the laws that the bureau enforces:
Term loans. A payday lending rule that the bureau established in 2017 is at the heart of the situation. After two unsuccessful tries, the rule prohibits lenders from taking money out of borrowers’ bank accounts. The organization predicted that the further withdrawal attempts would not benefit lenders in recovering any money but instead charge borrowers overdraft fees. Payday lending organizations sued the agency over its funding strategy.
Home loans and debt collection. The AARP testified before the Supreme Court that since the bureau’s inception, it has received more than 100,000 complaints from senior citizens who are occasionally the target of frauds and unfair lending practices. The group cited a bureau rule requiring lenders to determine a potential borrower’s capacity for loan repayment before to making a loan. A rule prohibiting debt collectors from calling a consumer more than seven times per week was also brought up by the group.
lend to the military. The Military Lending Act, a statute passed in 2006 that imposes interest rate restrictions and other safeguards on active duty servicemembers, was mostly enforced by the bureau, according to several military organizations who testified before the Supreme Court.