The Supreme Court Ruling in CFPB v. CFSA: Recent Updates
Key Takeaways:
- The Supreme Court upheld the CFPB’s funding structure, ruling it constitutional on May 16, 2024.
- The CFPB’s funding from the Federal Reserve satisfies the requirement that an appropriation be from a specified source of public funds.
- The Fifth Circuit ruling paused many of the Bureau’s activities and threaten past regulations and enforcement actions and those of other agencies that are similarly funded.
- With the Supreme Court’s decision, the CFPB will restart enforcement and litigation activities.
- The CFPB will boost its enforcement division by 50% and focus on key issues like junk fees and medical debt reporting.
On May 16, 2024, the Consumer Financial Protection Bureau (CFPB) survived another threat to its structure when the Supreme Court ruled in CFPB v. Community Financial Services Association of America, Ltd. that its unique funding structure did not violate the Appropriations Clause of the Constitution. Several trade associations representing payday lenders challenged the CFPB’s “Payday Lending Rule” on the grounds that it violated the appropriations process and unlawfully insulated the Bureau from political accountability and Congress’s power of the purse.
Background of the Supreme Court Ruling
The Dodd-Frank Act of 2010 created a unique funding source for the CFPB. Instead of receiving appropriation directly from the Congress, the CFPB is funded with money from the Federal Reserve. The Bureau is allowed to take up to 12% of the total operating expenses of the Federal Reserve, which itself is also funded outside the congressional appropriations process. Additionally, it is not required to relinquish any used funds. This funding structure was created with the intent to preserve the Bureau’s independence from the annual congressional appropriations process.
In October 2022, the Fifth Circuit Court of Appeals ruled for the trade associations, concluding that the structure risk executive overreach was due to lack of congressional oversight. This ruling could have invalidated all Bureau rules, enforcement actions, and other official actions. As a result, federal courts across the country stayed with Bureau enforcement actions and petitions to enforce civil investigative demands in addition to two other regulatory challenges to the Bureau’s authority.
In a 7 – 2 decision, with Justice Clarence Thomas writing the opinion for the Court, it held that Bureau’s funding structure meets the minimal requirements imposed by the Appropriations Clause. The Court reasoned that “an appropriation is a law that authorized expenditures from a specified source of public money for designated purposes.” Therefore, the Bureau’s funding meets these requirements. The funds are drawn from a particular source – the combined earnings of the Federal Reserve System in an amount that exceeding an inflation adjusted cap and for a designated purpose – to pay the expenses of the Bureau in carrying out its duties and responsibilities.
What Does This Mean For You?
As previously mentioned, many cases were pending the Supreme Court’s decision and will likely become actively litigated. These include the original case brought by the Community Financial Services Association of America (CFSA) regarding payment authorization provisions, a challenge to the CFPB’s final rule limiting credit card late fees and the final rule for Section 1071. Regarding 1071, the day after the ruling the CFPB extended compliance deadlines for the small business lending rule.
In a speech the day after the ruling, CFPB Director Rohit Chopra outlined several next steps for the Bureau. It will increase its enforcement work having to put many of its enforcement actions on pause while waiting the for case to be resolved. Additional focus efforts will be on repeat offenders including executives, stopping the use of junk fees, rules on overdraft fees and nonsufficient fund fees, and reporting of medical debt on credit reports.
A recent article in American Banker stated that the CFPB is looking to increase the number of full-time employees in its enforcement division by 50% and increase staff in its legal, operations, research and monitoring, and regulations divisions. In light of the push to move forward with enforcement activities, it is advised that organizations pick up the work that it may have previously put on hold to adjust programs to comply with recently enacted CFPB regulations. Wolf will continue to monitor any new developments in this area, and the continued litigation challenging new rules and regulations promulgated by the CFPB.
If you have any questions regarding this new ruling, please reach out to a member of our team today!
