Answers to FAQs - CFPB Funding Case

By now, most of our readers have heard that on May 16, 2024, the U.S. Supreme Court (SCOTUS) ruled that the funding structure of the Consumer Financial Protection Bureau (CFPB) does not violate the Constitution. In a prepared statement released on May 17, 2024, Director Chopra laid out what he thinks the SCOTUS opinion means for the CFPB and its focus, but what does this really mean for your organization? Will it impact your day-to-day business? What should ARM industry participants look out for in the future?  In addition to covering Director Chopra's plans, we’ll answer those and some other Frequently Asked Questions.  

Q: So, what was the ruling? 

A: The SCOTUS opinion is 59 pages discussing the word "appropriations," what it means historically, and what it means now. The opinion takes the reader on a historical journey from collecting money in the Middle Ages all the way through colonial times and finally to the present day. Ultimately, in an opinion written by Justice Thomas, the Court concluded that “appropriations need only identify a source of public funds and authorize the expenditure of those funds for designated purposes to satisfy the Appropriations Clause.”  

This article from Maurice Wutscher breaks down the legal discussion. If you’d really like to know how we got from the Middle Ages to the present day, though, the full opinion can be found here.

Q: Is there anything in the SCOTUS opinion that will impact the day-to-day of my operation?  

A: In the long run, this opinion will have significant downstream effects once the cases that were on pause while we waited for a decision resume litigation and are ultimately decided. However, those effects will take time to come to fruition.   

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In terms of the impacts of this specific case at this specific time, nothing in this opinion addressed the day-to-day operations or compliance initiatives of those organizations subject to the CFPB’s oversight. This case was literally a debate about what the word “appropriations” means in the context of constitutional interpretation. Though law school students will ultimately be tasked with reading this opinion and will undoubtedly engage in delightful theoretical discussions about it, nothing in the May 16, 2024 ruling should trigger operational or compliance level changes in your organization.  

Q: Does this Ruling mean the Late Fee Rule automatically goes back into effect?   

A: No. Though the SCOTUS decision applies to all things CFPB, it was entered in the Pay Day Lending case, which will now proceed. The Late Fee Rule case is an entirely different case. Thus, the preliminary injunction entered on May 10, 2024, remains intact, but it won't be for long. We can expect the CFPB to file something soon to ask the court to reconsider the injunction (Editor's note: as of 8:40 am EST on Monday, May 20, 2024, nothing has been filed to address the issue head-on; we may provide an additional update to this section when the CFPB makes its move). It’s important to note that the plaintiff in that action raised other legal issues beyond the CFPB’s funding, which the TX court might now consider. 

Q: Does the SCOTUS decision automatically mean the CFPB wins all the cases stayed while we waited for a decision? 

A: No, the cases that were stayed will continue once the appropriate document has been filed or entered in each case, but it does not mean the CFPB has won or will win those cases. Each court will then manage its own docket regarding timelines, but the cases will proceed on the other merits raised by the parties. We can certainly expect the CFPB to be very active in litigation in the coming weeks and months. 

Q: What can we expect to see from the CFPB in light of this decision? 

A: The line that keeps running through my head is George W. Bush's quote upon his reelection in 2004, “'I earned capital in this campaign, political capital, and now I intend to spend it.”  I’d be surprised if Director Chopra weren’t thinking something similar right now. That said, Leader of Clark Hill's financial services and regulatory practice and member of insideARM's Consumer Relations Consortium's Legal Advisory Board, Joann Needleman, said it best here: this is like “waking up a bear during hibernation.” In other words, don’t expect the CFPB to slow down anytime soon; expect the opposite. 

In line with these expectations, in prepared remarks published on May 17, 2024, Director Chopra did not mince words for the CFPB's future, stating: 

• "Here’s what will happen next. First, the CFPB will be able to forge ahead with our law enforcement work. ... The CFPB will continue to focus on repeat offenders, including the individual executives involved in calling the shots. Given our workload, we are increasing the ranks of our enforcement office." (emphasis added)
  
  
• "Second, our efforts to stop the creep of the junk fees will move ahead."
  
  
• "Third, expect to see more work when it comes to credit reports and credit scores." 
  
  
• "And there’s so much more. Whether it’s appraisals or auto loans or mortgages or medical loans, the CFPB will be firing on all cylinders."
  

Q: What can I do to protect my organization from increasing CFPB initiatives? 

A: Continue to watch for new areas of focus for the CFPB. Don’t assume they can’t or won’t do anything. Follow the pattern. When they release a statement about finding a problem with something, as they have with medical debt, and most recently with consumer rewards programs, assume there’s something going on behind the scenes, and we should expect some other announcement to follow. Additionally, though margins are tight and compliance personnel aren’t “revenue generators,” ARM organizations should look at their compliance departments and consider whether they are staffed properly to handle current and future compliance issues.  

Q: Is there anything that can be done to curb the CFPB? 

A: ARM industry participants should continue to comment on CFPB initiatives and continue to be vocal about the positive role that the ARM industry plays in the financial ecosystem. The ARM industry is not on its own here. After the SCOTUS decision was released, Chairman of the House Financial Services Committee, Patrick McHenry released a statement which indicated Republicans will continue the fight to rein in the rogue CFPB, and he urged the House to take up Congressman Andy Barr’s CFPB Transparency and Accountability Reform Act, which seeks to fix the mistakes of Dodd-Frank. 

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For additional insights on the SCOTUS CFPB funding opinion, read Troutman Pepper’s article here and Ballard Spahr’s article here. We’ll continue to monitor this story and adjacent stories as they develop.