As part of the administration’s push to curb excessive fees, the Consumer Financial Protection Bureau is proposing drastic reductions to fees charged to consumers by credit card companies. If approved, the unintended consequences of higher interest rates, lower credit lines, and fewer new cards being issued, all to make up the lost fees, could certainly contribute to a recession. Thus is what some call the paradox of the CFPB–formed out of good intentions as a response to the Great Recession, but extended too far to the detriment of creditors.
However, this proposed fee reduction and the Bureau’s many other rules regulating the financial industry may be temporarily moot beginning sometime next year. That’s because the future of the CFPB is truly up in the air.
Late last year, the Fifth Circuit severely curtailed the Bureau in Community Financial Services Association of America, et al. v. Consumer Financial Protection Bureau, et al., 51 F.4th 616 (5th Cir. 2022). The CFPB’s critics argued several theories to challenge its payday lending rule, but the Court of Appeals only needed to accept one, which it did. The Court held that the funding mechanism originally set up by Congress for the CFPB is unconstitutional.
Since its creation as part of Dodd-Frank, the Bureau has received up to a capped amount from the earnings of the Federal Reserve System. Rather than obtaining congressional approval of its funding in regular appropriations bills, the CFPB gets its funding from the Federal Reserve. The Fifth Circuit created a split with other circuits when it held that this funding mechanism violates the Appropriations Clause of the Constitution. The Court agreed that Congress must regularly appropriate funds as it would to fund any other executive branch agency.
Immediately following this decision, the proclamations of the CFPB’s demise were rampant. It was dead, never to recover, said its critics. While the Bureau tried to limit the damage to just the payday lending rule in the Fifth Circuit, the question remained open whether other courts would follow suit and invalidate any or all of its actions under the same theory.
The Supreme Court of the United States has now agreed to hear the case, although it is not being fast tracked. That means it will be heard in the October 2023 term, with a decision likely by June 2024.
Will the conservative court kill the brainchild of Elizabeth Warren? Will it find some middle ground? Or will it let the Bureau wither on the vine, without proper funding, until and unless Congress approves new funding. That won’t happen with this House of Representatives, if ever.
No matter what happens to the CFPB, federal statutes like the Fair Debt Collection Practices Act (FDCPA) and Fair Credit Reporting Act (FCRA) are not going away. Without the CFPB, the Federal Trade Commission will still have enforcement powers under these Acts. Compliance is critical for creditors to collect what they are owed and to avoid large penalties.
Contact the attorneys at Dalton & Tomich today to discuss your institution’s rights, remedies, and compliance with state and federal laws and regulations.