CFPB Supporters: Supreme Court Ruling Could Harm CDFIs, Credit Unions
Briefs filed with court differ from stance of credit union trade groups.
The NCUA, small financial institutions, CDFIs and consumers all would be severely harmed if the U.S. Supreme Court finds the funding scheme for the CFPB unconstitutional, a variety of groups argued in briefs filed with the high court.
“The CFPB’s budgetary mechanism creates stability and predictability and enables the Bureau to discharge its functions in an independent and impartial manner,” the Center for Responsible Lending (CRL) and other groups—including the New York CDFI Coalition—wrote in a joint brief. “This benefits CDFIs, credit unions, and their customers who typically have less access to the political decisionmakers than large financial institutions.”
Backstory and Context
The CRL is an affiliate of the Self Help Credit Union. Meanwhile, credit union trade groups have argued that the CFPB should be transformed into a commission, which would be funded through the appropriations process.
The Fifth Circuit Court of Appeals ruled the bureau’s funding is unconstitutional because it does not flow through the annual appropriations process, but instead is provided by the Federal Reserve. The CFPB has appealed that case to the Supreme Court, which has accepted it.
The bureau has filed its own brief with the court, as have many groups supporting the agency’s position.
On the other side, the Consumer Financial Services Association (CFSA)—which originally had sued the CFPB over its payday lending rule—has not filed its brief yet and neither have supporters of that position. The CFSA represents the payday lending industry.
The Briefs Supporting the CFPB
Here is a look at two of the briefs that argue a ruling in favor of the CFSA would have devastating impact.
Center for Responsible Lending
The CRL and several other groups said that the current funding mechanism insulates the agency from political pressure, which allows it to provide benefits to small financial institutions, including credit unions.
“Using this time-tested method for protecting the ability of financial regulatory agencies to exercise their authority unhesitatingly and without fear of the power of large financial institutions, Congress protected the Bureau’s ability to oversee the consumer financial marketplace and promote financial stability,” the center and others argued.
The groups noted that insulation from political pressure is particularly important because it allows the agency to serve small financial institutions. For instance, they said, the CFPB has in certain cases exempted small financial institutions from some of its rules and policies.
Financial Regulation Scholars
That is how two consumer financial experts referred to themselves in another brief filed with the court.
The scholars—Adam Levitin, a law professor at Georgetown University Law Center, and Patricia McCoy, a law professor at Boston College Law School—make several arguments in opposition to the appeals court rule, but one statement relevant to credit unions stands out.
“Because no federal bank regulator is funded through annual appropriations, the court of appeals’ reasoning would apply to every other federal bank regulator, including the Federal Reserve Board,” the brief states. “The court’s logic would further require defunding all federal banking regulators, not just the CFPB.”
That, they said, could be the tipping point that drives the U.S. into a recession.