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Are we watching the slow death of the CFPB?

On the second day of its October 2023 term, the Supreme Court will hear a case discussed here before, on appeal from the Fifth Circuit—Consumer Financial Protection Bureau v. Community Financial Services Association of America, Ltd. The CFPB’s unconstitutional funding mechanism is the basis for denying its authority to promulgate and enforce rules.  As predicted, this is impacting the CFPB long before the Court hears or decides the case.

We’ve previously predicted that the implementation of the CFPB’s Small Business Lending Rule (pertaining to Section 1071 of Dodd-Frank) will enlarge the chorus of financial institutions hoping the Supreme Court kills off the CFPB. The Rule will be onerous on lenders, particularly smaller community banks and credit unions.  The prediction was true, and the chorus is getting larger and louder by the day. The Chief Judge of Southern District of Texas recently enjoined enforcement of the Rule against members of the Texas Bankers Association and the American Bankers Association.  The plaintiffs’ argument against the Rule is the pending matter in the United States Supreme Court.

But why just limit it to those plaintiffs and not issue a nationwide injunction?  That’s what the plaintiffs sought, and Credit Unions are, too, by intervening in the Texas Bankers’ case.  Led by two large trade associations, including the Credit Union National Association (CUNA), the Credit Unions argue that they have the same reasons to oppose the rule as the plaintiffs, and they are now harmed by the Court’s limited injunction because it protects their competitors. Another group of independent banks has also intervened and joined the Credit Union’s efforts.

But the Small Business Lending Rule is not all that’s impacted by the pending Supreme Court case.  A federal judge in the Southern District of New York has stayed an enforcement action brought by the CFPB and the New York Attorney General against Credit Acceptance Corporation. The CFPB and the State of New Yorkallege unfair practices, excessively high interest rates, and predatory lending by Credit Acceptance to vulnerable consumers. Judge Jennifer Rearden agreed with Credit Acceptance that the case should not proceed until after the Supreme Court rules on the funding mechanism issue.

These cases are but two examples of the immense impact the Supreme Court case has just while it’s waiting to be heard.  A ruling against the CFPB—that its funding is unconstitutional, and it therefore lacks enforcement authority—would have a significant impact on the financial services industry and beyond.  The scope of the CFPB’s enforcement reaches a wide array of financial issues—from auto lending, to payday lending, to fair debt collection, and mortgage servicing.  And don’t forget small business lending. Congress could fix the funding issue, but the CFPB is so controversial, any new funding bill is unlikely to pass the current House of Representatives. 

The attorneys at Dalton and Tomich represent credit unions, regional banks, and small businesses impacted by CFPB rules and enforcement.  Contact us today to discuss any lending, transactional, or compliance issues.

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