On Tuesday, the Supreme Court will hear a case filed by a trade group of payday-loan lenders against the CFPB. Last year, the U.S. Court of Appeals for the 5th Circuit — considered by many the most right-wing court in the country — agreed with the plaintiffs’ argument that the funding mechanism for the agency is unconstitutional.
In the worst-case scenario, this could lead to not just an end to payday-loan regulations, the continued halting of CFPB cases across the country, or to the CFPB needing to find a new funding source. It could lead also to much of the agency’s past work being declared invalid. This is not simply a fear being felt by progressives. It’s in a brief submitted to the court jointly by the Mortgage Bankers Association, the National Association of Home Builders and the National Association of Realtors, hardly anyone’s idea of the usual lefty suspects. While studiously not taking a side on the question of the bureau’s constitutionality, the groups point out that almost all residential real estate transactions are governed by CFPB rules, and that with a broad ruling, further court challenges might mean “the housing market could descend into chaos.”
This would be an extreme price to pay for the guardrails the CFPB is attempting to put between payday-loan lenders and their 12 million-strong, mainly lower-income customer base. The case centers on Trump-era regulations that would make it harder for the industry to push their customers further into debt when they lack money in their bank accounts to pay back short-term loans — some of which carry annual interest rates approaching 400 percent. It would stop the lenders from making multiple requests for payment, which, in turn, would prevent banks from repeatedly charging customers overdraft fees.
That’s the thing about the CFPB. The work sounds kind of small-bore and technical — personal finance concerns can come across that way. But it’s important to the finances of 330 million Americans, as well as extremely threatening to many in the financial-services industry.
The brainchild of now-Sen. Elizabeth Warren (D-Mass.), the CFPB came into being in the wake of the 2008 housing crash, as a way of both regulating and helping Americans navigate consumer-finance industries. “Prior to the financial reforms of 2010, there really was no federal agency responsible for policing these financial companies operating outside of the banking system,” said CFPB head Rohit Chopra, when I spoke with him this past week. “There’s lots of industries that have been subject to meaningful federal enforcement oversight for the first time.”
Not surprisingly, they don’t like it, and nor do their Republican cheerleaders. The companies have spent more than a decade attempting to hobble or dismantle the CFPB. President Donald Trump first appointed notorious CFPB hater Mick Mulvaney to head it up and destroy it from the top, then later chose Kathy Kraninger, who had almost no experience in the financial services industry at all.
Heck, this isn’t even the first case that’s made it to the Supreme Court challenging the CFPB’s constitutionality. In 2020, the Supreme Court said a president had the power to ax the head of the agency for any reason — but left the rest of its structure intact. The agency survived the Trump years to see the inauguration of a more supportive Joe Biden, who appointed Chopra, a Warren protégé.
But as the old adage goes, if at first you don’t succeed, try again. So, here we are.
As this case grinds on, the CFPB is continuing to work — just this past week, it began the rulemaking process to remove medical debt from credit reports — but there is no question it is proceeding with one hand tied behind its back. Courts have now granted multiple stays on CFPB regulations or enforcement actions:
- Moneygram, a wire-service company favored by immigrants to send money back to their families, is facing CFPB allegations that the firm failed to deliver the funds on time.
- Active Network, a little-known payment platform, got a stay in an enforcement action accusing it of tricking people attempting to pay for such things as YMCA camps or charity fundraisers into signing up for its subscription discount service.
- Subprime auto lender Credit Acceptance picked up a stay in a case in which the CFPB alleges the company “obscured” the cost of loans, leading to borrowers getting hit with surprise fees, unaffordable monthly bills and, in some cases, a visit from the repo man.
- There’s a payday-loan outfit in the group, ACE Cash Express, which the CFPB says didn’t inform their customers about free repayment plans, leading them to rack up even more debt.
- FirstCash got a pause in a case brought against it by the CFPB, which alleges the pawnbroker took advantage of military members, charging them multiples of the 36 percent annual interest rate allowed by law.
- The members of the Texas Bankers Association and the American Bankers Association received a stay in needing to comply with congressionally required CFPB regulations to report data on their small-business lending practices, as part of the agency’s enforcement of anti-discrimination statutes. Other financial associations have since received similar stays.
“They may not be big brand names. But they sure affect a lot of people,” Chopra said.
While horse-race political coverage gets more attention, Chopra understands something that Washington insiders often forget. Consumer rights are at the heart of the American relationship with government.
“The people who file complaints with us, many of them are desperate and assume no one is listening, and all of a sudden they finally get a clear response from their bank or financial company,” Chopra told me. “That small thing goes a long way for individuals to realize their government is working for them.”
Think of it this way. The CFPB takes the famous Ronald Reagan quip — “The most terrifying words in the English language are: I’m from the government and here to help” — and turns it on its head. Unless you’re a predatory financial-services company, the government, in this case, is here to help all of us. This is what makes the CFPB such a powerful force — and why business interests, and those politicians who put them ahead of constituents, have spent more than a decade trying to put an end to it.
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