LEGAL NEWSLINE

Today, the U.S. Supreme Court handed down its ruling in the much-anticipated Consumer Financial Protection Bureau (CFPB) v. Community Financial Services Association of America (CFSA) case that challenged the CFPB’s independent funding mechanism through the Federal Reserve. The American Financial Services Association joined with other trades in an amicus brief arguing that the Bureau’s “funding scheme is historically unique.”

While there may be CFPB staff breathing a sigh of relief over this ruling, this Supreme Court decision does nothing to bring clarity or transparency for consumers, the consumer credit marketplace or Congressional oversight. The result of the court maintaining the status quo most likely ensures continued confusion over unclear CFPB guidance, ongoing uncertainty with rulemaking by blog post and selective enforcement actions, and an agency not bound by robust congressional oversight. 

As background, the case began in 2018 with a challenge to a rule governing the payday lending industry. CFPB v. CFSA challenged the Bureau’s rule, as well as its authority to make such a rule by questioning the constitutionality of the Bureau’s unique, “double insulated” funding process. 

A federal appeals court held that the rule followed the Administrative Procedures Act, but the funding mechanism for the CFPB violated the Constitution. The Biden administration, sought an opinion from the Supreme Court, noting that allowing the lower court’s decision to stand could raise “grave concerns” for “the entire financial industry.”

Our legal filing argued that the CFPB’s funding structure, which is free from congressional oversight and budgetary process, was unconstitutional. We explained that the Bureau enjoys a unique funding structure, separate from the congressional budget process, and noted that while other agencies draw funding from other entities (Office of the Comptroller of the Currency, Federal Deposit Insurance Commission), none combine that autonomy with the vast, sweeping authority given to the Bureau. Agencies that are market regulators and thus easy comparisons to the Bureau, like the Federal Trade Commission, which shares some regulatory responsibility with the CFPB, are funded by Congress and accountable to the people. The Bureau, on the other hand, is a legislature, prosecutor, and court.

A majority of justices disagreed, and while the funding issue now appears to be off the table for Congress, there remain serious, far-reaching regulatory issues with the CFPB and its uneven oversight. For example, the CFPB is allowed to supervise companies that it decides “pose risk to consumers.” The agency for the first time recently began using this authority, except it has never attempted to define what “risk” means. Declaring a company “risky” without defining risk ahead of time is like a highway patrol running a speed trap pulling over cars for speeding without posting let alone setting the speed limit.

This is nothing new, by the way. AFSA has often noted that the agency isn’t writing regulations using the rule making process. Instead, it has used blog posts, vague guidance, and opinion letters to establish policies with no opportunity for industry players or consumers or Congress to provide input.

AFSA and its members believe that Congress asserting greater oversight of the CFPB may resolve some of these issues.  But our industry also genuinely wants to work with the Bureau to develop regulations that protect consumers, while ensuring they have choices for their credit and provide clear and easy-to-follow guidelines to lenders. For many years, our member companies have operated under a set of consumer credit protections, which we think can help inform the clear rules of the road when needed.  The protections include:

1. Consumer Confidence: Consumers deserve choices in loan products they can be confident will provide benefits and meet their needs.
2. The Right Price: Loans should be affordable and not trap borrowers in cycles of debt.
3. Clarity and Certainty: Loan terms must be understandable, with documents that include all costs, clear terms, and conditions.
4. Privacy and Security: Consumers must be confident that their personal information and sensitive data is protected and respected by those with whom they do business and by regulators that have access to that data.

When needed, the CFPB can and should create reasonable and clear rules of the road that protect consumers’ access to credit, which is crucial to financial stability and economic mobility. Those are worthy goals AFSA and its members seeks to promote every day and we want to work with the agency to ensure those goals are achieved.

Bill Himpler is the president and CEO of the American Financial Services Association, the oldest and largest trade group representing the consumer credit industry. Read more about AFSA’s views on consumer protections and ensuring access to credit at www.CaseforCredit.com.