Thursday's Supreme Court ruling upholding the Consumer Financial Protection Bureau's funding mechanism clears the way for reopening numerous cases involving the Consumer Financial Protection Bureau that were frozen pending legal challenges. This could include new rules for payday lenders and penalties for money transfer companies. . But the ruling is far from eliminating the agency's legal hurdles.
Immediately after the ruling was announced, lawyers for the bureau's Office of Consumer Abuse Prevention in the Financial Industry began preparing dozens of legal filings in an effort to unfreeze the bureau's operations. They include a request for a federal judge to halt the suspension and subpoenas to financial companies under the new rules. The Supreme Court's ruling should resolve some suspensions, but the agency will still struggle to overcome other hurdles.
“The CFPB has now quashed any existential threat, but the next step is trench warfare, fighting the industry rule by rule,” said Graham Steele, a longtime financial regulation lawyer and former Treasury official.
He noted that Justice Samuel A. Alito Jr.'s dissenting opinion cited three recent Consumer Affairs Division actions that, in Alito's view, constitute “significant changes” to consumer protection law. did. “Congress specifically authorized none of them,” the judge wrote.
This language aligns with the “grave issues doctrine,” a fairly new but increasingly invoked legal principle that prohibits government agencies from taking politically or economically significant actions without the express approval of Congress. This suggests possible issues based on the following.
The agency's problems are most likely to continue, in part due to a ruling by the U.S. Court of Appeals for the Fifth Circuit, where financial industry trade groups have filed a flurry of lawsuits challenging the agency's actions. For years, federal judges in the Fifth Circuit, which covers Texas, Louisiana and Mississippi, have used broad rulings to freeze or cancel the department's cases, and appellate boards have almost always ruled against them. , affirming or extending these lower court decisions.
“The Fifth Circuit has really become a vehicle for bringing completely outlandish arguments that are not within the bounds of normal legal agreements into the national debate, not just the ballpark of normal legal agreements,” Cornell University. said K. Sabbir Rahman of the Faculty of Law. School professor, former White House Office of Information and Regulatory Affairs official.
Banking industry groups were quick to point out other issues with regulators.
Consumer Banks Association “Lindsey Johnson, the group's president, said she was “reassured that this important legal issue has been resolved,” but that the Supreme Court's decision “rejects the CFPB's recent seemingly political rulemaking from public scrutiny.” “It should not be seen as an endorsement by anyone,” he added.
Jeremy Kress, assistant professor of commercial law at the University of Michigan's Ross School of Business, said comments like Johnson's indicate that banking industry groups may pursue concerns through administrative law channels. . Government agencies must follow detailed rules when developing regulations, and industry groups frequently accuse Consumer Affairs Bureaus of violating the rules.
“Banking industry groups still have a lot of ammunition to take this fight to the Fifth Circuit,” Kress said.
Below is a list of key actions by the department that were put on hold while the court awaited the Supreme Court's decision.
Late fees for most credit cards are limited to $8
This could be the first case to be revived. A rule drastically limiting late fees on most credit cards was scheduled to go into effect this week, but industry groups immediately filed a lawsuit seeking to block the rule. Texas federal judge Mark Pittman, who heard the case, issued an injunction blocking the rule from taking effect, citing a Fifth Circuit ruling that found the Consumer Affairs Bureau's funding mechanism unconstitutional. . With the ruling overturned, Judge Pittman could end the injunction, but the 5th Circuit could intervene again.
Rules requiring banks to share data on small business loans
The purpose of the rule is to provide regulators with a way to examine whether banks lend fairly or discriminate against certain groups, including racial minorities, in their lending decisions. Banking industry groups argue that sharing data on small business loans is too costly and burdensome.
In July, the banking group won a bid to suspend the rule. Both sides have since filed briefs supporting their positions, but the judge overseeing the case is waiting to consider them. The Supreme Court's decision allowed the case to proceed.
Investigation of discrimination against banks and other financial companies
In 2022, the Bureau will require banks and other financial providers to conduct periodic inspections to determine whether their treatment of customers may inadvertently disadvantage certain groups, including racial minorities. I was informed that I needed to undergo a test. Industry groups quickly objected to the move on several grounds. The agency said it did not adequately notify financial companies that it was considering the move. It also argued that it had no authority to check discrimination.
Federal Judge J. Campbell Barker of the Eastern District of Texas accepted the second argument, ruling that the agency had failed to demonstrate “clear Congressional authorization of the purported authority.”
The Consumer Affairs Bureau has vowed to appeal the ruling, but has agreed to wait until the Supreme Court rules. Now they will have to argue to the same panel of judges that ruled the funding structure unconstitutional that Judge Barker was wrong.
Restrictions on payday lenders
The Consumer Affairs Bureau has been working for years to finalize a comprehensive set of regulations for the payday loan industry, but before they took effect, it delayed implementing new rules appointed to the agency by President Donald J. Trump. , then abolished. Only minor provisions remained, including one that prevents lenders from repeatedly attempting to withdraw funds from borrowers' empty bank accounts.
Industry groups sued to block the watered-down rule as part of a case the Supreme Court decided Thursday. This ruling paved the way for the payday lending regulations to take effect.
enforcement measures
More than two years ago, the Consumer Affairs Bureau sued First Cash, alleging that the pawn shop chain violated interest rate limits imposed on loans to active-duty military personnel. The case had been put on hold after the Fifth Circuit overturned its decision.
Another case in which the bureau accused international money transfer company MoneyGram of illegal mistakes and delays similarly stalled. That case and others can now move forward.
The bureau is currently seeking a federal judge's approval to collect information from a group of payday lenders and other small lenders, including Check City Partnership, Financial Asset Management, Purpose Financial, and Community Loans of America. There is a high possibility that you will get . It may violate that rule. The company is also waiting for the green light on a request for information it sent to collection agency National Credit Systems that it believes may have violated debt reporting and fair credit rules.
Representatives for Check City, Community Loans of America, Financial Asset Management, FirstCash, MoneyGram and Purpose Financial did not respond to requests for comment. A lawyer for National Credit Systems declined to comment.
