Consumer Reports praises Supreme Court decision upholding the CFPB’s constitutionality as a major victory for consumers

Court rejects lawsuit filed by payday lenders that would have crippled the critical consumer watchdog 

WASHINGTON, D.C. – The U.S. Supreme Court ruled today that the funding mechanism authorized by Congress for the Consumer Financial Protection Bureau through the Federal Reserve Board is constitutional. Consumer Reports applauded the court’s decision in Consumer Financial Protection Bureau (CFPB) vs. Consumer Financial Services Association (CFSA) as a huge win for consumers and a defeat for the payday lending industry that challenged the Bureau’s funding.

“Today’s decision is a major victory for consumers that will enable the CFPB to continue working to foster a fair, competitive and transparent financial marketplace,” said Delicia Hand, senior director of digital marketplace for Consumer Reports. “Since its founding, the CFPB has been a vital cop on the beat enforcing the law and holding banks and other financial firms accountable when they engage in shady practices that cheat consumers out of their money. As financial products and services continue to evolve, it is critical to have a watchdog like the CFPB working to root out discrimination and the latest bad practices that put consumers at risk of fraud and abuse.”

The CFPB has racked up an impressive record of accomplishments, establishing clear rules to ensure consumers are treated fairly when they take out a loan, make a payment, or open a bank account; helping millions of consumers resolve complaints with financial firms; and winning billions of dollars in relief for those who have been mistreated.

Congress created the CFPB in response to the 2008 financial crisis, which had been triggered by the collapse of the U.S. mortgage market. One of its first priorities was to create new rules governing everything from the kind of underwriting lenders must do to ensure borrowers can pay back their loans, to clear and user-friendly disclosure documentation for consumers, to fair loan servicing and foreclosure processes. Many of these rules were created in response to the flawed and abusive industry practices that contributed to the financial crisis.

Congress established the CFPB with independent funding through the Federal Reserve in order to shield it from the political pressure wielded by the powerful financial industry and to ensure consistent operations. In addition to the CFPB, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation all receive their funding independent from the annual congressional appropriations process.

The Supreme Court case challenging the CFPB’s funding began as a 2018 lawsuit by the CFSA, which lobbies on behalf of short-term, high-interest payday lenders. That suit challenged the CFPB’s payday lending rule, which prevents lenders from repeatedly trying to pull money from borrowers’ empty accounts, sometimes triggering hundreds of dollars in overdraft fees.

The CFPB initially prevailed in that case, but the payday lending industry appealed and the 5th Circuit Court of Appeals embraced a radical legal theory: that the way the CFPB is funded violates the Constitution and that therefore the payday lending rule was invalid. If the Supreme Court had upheld the 5^th Circuit’s decision, the same rationale could have been used to roll back every rule the CFPB has ever issued and every enforcement action it has ever taken.

Michael McCauley, michael.mccauley@consumer.org