Why the CFPB’s Fate in the Supreme Court Matters for Small-Business Owners

While the Consumer Financial Protection Bureau has famously put the screws to the nation’s biggest banks for behaving badly, it has sought justice in countless lower-profile matters that many a small businessperson has found themselves saluting.

Take the case against Hello Digit, which found that a tool from the fintech company caused consumer accounts to be overdrafted and allowed Hello Digit to collect excess fees. Or the case against Trident Mortgage Company, which revealed that the mortgage lender engaged in discriminatory lending practices like redlining, and discouraged prospective applicants from seeking out lines of credit. And you can thank the agency for ensuring lenders give you the chance to “opt in” to overdraft fees if you over draw an account. 

At just 12 years old, the agency which was set up in the wake of the financial crisis to protect consumers from deceptive financial practices, has issued more than 100 rules and collected $4 billion in fines from the likes of Wells Fargo and Bank of America, among others. 

It’s little wonder, then, why the CFPB is under attack. “No agency, in perhaps [all of] the federal government, is more vilified and more disliked than this one,” says Nicholas Jacobs, a political scientist and assistant professor at Colby College. “[T]his has been an agency that financial institutions and financial trade groups have viewed with scorn because it is charged with regulating financial products that, since the early 90s, had been deregulated.”

All that could go away–including every single ruling the agency has made in its short tenure. The Supreme Court on Tuesday began hearing arguments in a case–Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited–related to the bureau’s funding mechanism. The plaintiff, an association of payday lenders, suggests that the CFPB’s funding mechanism is unconstitutional, as it bypasses the annual appropriations process in Congress. The agency receives its funding through the Federal Reserve instead of Congress–and that’s by design. In doing so, the CFPB circumvents the political showdown that’s come to overshadow the budgeting process.

That very structure is the center of the lawsuit launched by payday lender trade groups challenging the CFPB’s 2017 payday lending rule. The groups claim that the agency can’t enforce the rule because the CFPB’s funding structure is not constitutional.

Should the High Court rule in favor of the payday lenders, the remedies could involve a dissolution of the agency along with an “unwinding” of past rulings. In other words, the precedent the agency has set to protect consumers from bad business practices could suddenly be awash in legal challenges that ultimately could render them obsolete. 

A ruling against the CFPB would also carry implications for other federal agencies, including the Social Security Administration, the Federal Reserve, and the Federal Deposit Insurance Corporation, which similarly don’t rely on annual appropriations from Congress for funding.

Early commentary from the bench showcased skepticism toward the payday lenders’ argument. Justice Elena Kagan on Tuesday told the attorney representing the payday lenders that their arguments were “flying in the face of 250 years of history.”

What’s more, it’s possible that even if the justices rule in the payday lenders’ favor, the CFPB could survive the challenge by making tweaks to its funding structure. Namely, the agency could seek federal appropriations going forward.

There’s reason to remain optimistic. The CFPB has gone before the Supreme Court in the past and prevailed. In 2020, the agency withstood another constitutional challenge to its leadership structure. While the High Court ruled that the CFPB’s leadership structure was in fact unconstitutional, the agency was able to adapt its policies to survive. Whether it’ll get the option again, in this case, remains an open question.