In a notable ruling, the U.S. Supreme Court has upheld the funding structure of the Consumer Financial Protection Bureau (CFPB), concluding that it does not violate the Constitution’s separation of powers clause. Justice Clarence Thomas authored the decision, which passed with a 7-2 majority. Justices Samuel Alito and Neil Gorsuch dissented.
The case, Community Financial Services Association of America Ltd. (CFSA) v. CFPB, revolved around whether funding the CFPB through the Federal Reserve, rather than direct congressional appropriations, was constitutional. This decision reverses an earlier ruling from the 5th Circuit Court of Appeals, which had found the funding method unconstitutional.
In the Supreme Court’s majority opinion, it was stated, “The statute that provides the Bureau’s funding meets these requirements. We therefore conclude that the Bureau’s funding mechanism does not violate the Appropriations Clause.”
The original 5th Circuit case stemmed from CFSA’s challenge to the CFPB’s 2017 payday lending rule, arguing the bureau was acting unconstitutionally. The 5th Circuit agreed, but the Supreme Court’s review has now overturned this decision.
Background and Arguments
The case saw oral arguments in October 2023, with justices divided on the issues. U.S. Solicitor General Elizabeth Prelogar defended the CFPB’s funding method, citing historical precedents for similar federal agencies. On the other hand, former solicitor general Noel Francisco, representing CFSA, argued that Congress should control the bureau’s funding.
While the focus was on the CFPB’s funding structure, CFSA’s challenge to the 2017 payday lending rule remained a key aspect. With the Supreme Court’s decision, pending enforcement actions previously stayed will resume, and there may be reconsideration of the 5th Circuit’s injunction delaying the implementation of the CFPB’s credit card fee rule.
Remarks from CFPB Director Rohit Chopra
CFPB Director Rohit Chopra emphasized the importance of enforcing laws to ensure a fair financial system. He stated, “Our economy and our financial system don’t work for the public when there are laws on the books that simply go unenforced. This isn’t just bad for consumers, it’s bad for the honest businesses that play by the rules. We saw the results of this in a devastating financial crisis that cratered the economy.”
Since its founding in 2011 as part of the Federal Reserve System, the CFPB has faced opposition from large financial firms aiming to reduce consumer protection and law enforcement. The payday loan lobby has frequently argued that the CFPB’s funding structure is unconstitutional. Chopra noted, “Yesterday, the Supreme Court rejected a radical theory that would have rattled financial markets by injecting uncertainty into all of the CFPB’s actions taken since day one. In its opinion, the Court repudiated the arguments of the payday loan lobby. The Court’s ruling makes clear the CFPB is here to stay.”
Chopra outlined the CFPB’s upcoming priorities following the Supreme Court decision. The bureau will resume its law enforcement work, which had been paused during the case. “In many of these lawsuits, we allege that the defendants engaged in severe misconduct that took advantage of people, including ones living paycheck to paycheck and even military families. That means justice has been delayed for too many,” Chopra said. The CFPB plans to expand its enforcement office to handle the increased workload.
Additionally, the CFPB will continue efforts to eliminate unfair fees in financial markets, which have already led to significant reductions in junk fees and recoveries of illegally obtained fees. “We’ll continue to defend our rule to close a longstanding late fee loophole on credit cards, which credit card giants have abused for years. We’ll be working to finalize rules on overdraft fees and nonsufficient fund fees,” Chopra explained. These reforms are expected to save consumers $20 billion annually.
The bureau also intends to address issues related to credit reports and credit scores, particularly focusing on inaccuracies and unfair practices by debt collectors. Chopra mentioned, “We do not want a system where debt collectors can weaponize a credit report to coerce someone to pay a bill that may not even owe.”
Chopra concluded by emphasizing the CFPB’s role in maintaining a fair financial system: “Our banking and financial system is supposed to support the American dream, not destroy it. We should all want markets where people can do business with a provider of their choice without worrying that they’ll be ripped off or mistreated. It’s really that simple. That’s the vision the CFPB was created to protect, and that’s what we’re going to keep on doing.”
Summary
The Supreme Court’s decision confirms the constitutionality of the CFPB’s funding through the Federal Reserve, reversing the earlier 5th Circuit ruling. This verdict allows the CFPB to continue its operations under the current funding structure and lifts previous stays on enforcement actions. The debate highlighted differing views on the balance of power and the proper role of congressional oversight in federal agency funding. Director Rohit Chopra reaffirmed the CFPB’s commitment to consumer protection and outlined the bureau’s ongoing and future initiatives to ensure fair practices in the financial market.
Author: Jennifer Evancic
Jennifer.Evancic@ResourceManagement.com
Jennifer Evancic is a third-party auditor valued by creditors and large organizations for her knowledge in call monitoring within the collections industry. With meticulous attention to detail and a firm grasp of regulatory requirements, she ensures compliance with clients’ criteria and state and federal regulations.
Jennifer audits collections calls, ensuring they meet client-specific criteria and comply with regulations, providing valuable insights and maintaining industry standards.
Beyond her auditing responsibilities, Jennifer takes the lead in organizing and facilitating monthly call calibrations. These sessions serve as a collaborative forum where clients and their vendors come together to discuss call monitoring results and address any findings or areas for improvement. Jennifer’s guidance fosters open communication and ensures alignment between clients and vendors, driving continuous improvement in collections practices.
Jennifer stays up-to-date with compliance and industry best practices by participating regularly in peer meetings, regulatory updates and industry webinars. This keeps her informed about emerging issues and ensures she remains a knowledgeable leader in collections compliance.
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