The Consumer Financial Protection Bureau, as we’ve discussed here before, has been extremely active during the Biden Administration. It has aggressively tackled several areas perceived by many as beyond its core mission and purpose—small business lending, mortgage servicing, land contracts, chatbots, earned wage access, just to name a few.
It’s also fair to say the Bureau was emboldened by the Supreme Court earlier this year, when it held that its unique funding mechanism is indeed constitutional.
Everything will change beginning January 20, 2025. Okay, that’s an overbroad statement that encompasses the trepidation that many share post-election. However, I’m just talking about the CFPB here. And it’s also fair to say I have had differences with the CFPB as it was administered by this administration.
The CFPB has continued its aggressive stance since our last blog on the subject, including providing guidance on overdraft fee consent. Do you ever wonder why financial institutions make you sign and acknowledge so many notices when you open an account? Or why they send electronic or paper notices just to let you know something in their policy has changed? It’s because they are heavily regulated and can face punishment just for charging you an overdraft fee without your consent.
That’s right. You can choose to over-extend your finances and to make payment without sufficient funds to cover it. However, your bank can only charge you for the NSF if you’ve been provided notice of your right to opt in or out of overdraft services. The CFPB’s latest guidance stresses that the financial institution bears the burden of proof and must retain the evidence to meet it.
Another pending challenge to the CFPB comes from its newly final Open Banking Rule, which will purportedly foster competition between financial institutions and provide consumers with more choices. The institutions maintain that it inadequately safeguards consumer data, notwithstanding limits on what information can be shared and maintained between banks, their competitors, and data providers. Even though compliance with the Open Banking Rule will be phased in, with the first required reporting by large institutions due in April 2026, at least one federal lawsuit has been filed to challenge it in the Eastern District of Kentucky.
Finally, we previously discussed the Small Business Lending Rule, which requires burdensome data collection and reporting by financial institutions beginning in July 2025. The Fifth Circuit Court of Appeals has agreed to expedite an appeal from the Texas Bankers Association (and several others) challenging implementation of the Final Rule under Section 1071 of Dodd-Frank. The Texas Bankers are certainly in the right circuit. If any court will rule in their favor, the Fifth Circuit is the most likely.
While the courts proceed with these cases, the CFPB’s position will likely change early next year. The CFPB Director is appointed by the President and confirmed by the Senate. Rohit Chopra will be out of a job on January 20. Banks and financial institutions are going to see a tidal shift in policy in their favor. We will be watching closely to see how far the pendulum swings the other way.
Call us at Dalton & Tomich today if you have any questions about the CFPB’s authority, enforcement, or compliance.
