Supreme Court to Decide Fate of Fair Lending Agency: A Primer on CFPB v. CFSA

Here’s what you need to know ahead of the Supreme Court’s oral argument in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited on October 3.

What is the Consumer Financial Protection Bureau? 

As you’d guess from the name, the Consumer Financial Protection Bureau (or CFPB) is a federal agency that enforces laws with a direct impact on consumers and their finances, like those that affect fair lending, credit reporting, debt collection, and mortgages. It’s one of several agencies that regulate our banking system. 

Why did Congress create the CFPB?

In 2008, our country’s banking system nearly collapsed, leading to a massive federal bailout of banks and a deep recession. The crisis happened because lenders made millions of new high-cost mortgages, without using common-sense rules to make sure homeowners could repay them. For years beforehand, we urged federal banking agencies to do a better job of enforcing the laws, but they didn’t listen.

After the bailout, Congress agreed the banking system needed a new agency. Its primary focus had to be on what was good for consumers. But like other banking agencies, it needed an independent source of funding so it wouldn’t constantly be threatened by hostile legislators or become part of a government shutdown. This new agency, the CFPB, was created as part of a 2010 law known as Dodd-Frank.

Why is the CFPB’s work important?

The CFPB is the biggest success of the 2010 reforms. In 12 years, it has held a lot of banks and other companies accountable for deceptive and discriminatory conduct, returning $16 billion to consumers in refunds and other relief. It also works with companies so they understand how to comply with consumer and civil rights laws.

Has it been controversial?

The CFPB has had enemies from the outset. Some parts of the financial industry just don’t want to be held accountable. And many members of Congress, who get a lot of campaign money from that industry, have pushed legislation to badly weaken the agency. They even blocked Elizabeth Warren, who as a professor first conceived of the CFPB, from becoming its first director (so she became a senator instead).

What is the lawsuit about?

Fortunately, bills to weaken the CFPB have failed. But opponents are hoping they’ll have better luck in the courts. In this case, banking lobbyist groups are claiming that the agency is unconstitutional because it doesn’t go through the annual appropriations process. Their argument is based on a distorted reading of the Appropriations Clause, Article I, Sec. 9, Clause 7.

What have the courts said so far?

Two federal appeals courts have ruled on this issue of the CFPB’s funding. One said that the current structure is unconstitutional, and that the agency would need to get funding from Congress every year. Another court disagreed, saying the Appropriations Clause was meant to limit the executive branch, not Congress, so Congress can create agencies that don’t have to get appropriations every year.

What will happen in the Supreme Court?

The Supreme Court will likely have to agree with one of the two appeals court opinions. Because of the wording of the law that created the CFPB, it’s hard to see how the Court might come up with some middle ground. 

What happens if the Supreme Court rules against the CFPB?

A ruling against the CFPB would be catastrophic. First, it would leave a huge vacuum in the enforcement of the Equal Credit Opportunity Act and many other laws that protect consumers. Second, it would create a lot of uncertainty in the industry, as it would throw the past 12 years of regulation into question. And third, it would require Congress (yes, this Congress) to come up with some new structure.  

What is The Leadership Conference’s take on the case?

We joined a “friend of the court” brief in support of the CFPB. We argued that Congress had the power to create an independent funding structure, just as it has done for other agencies. And we lifted up the CFPB’s crucial work in fighting predatory and discriminatory financial practices.