Ordinary Americans are in danger of being unexpectedly walloped in the wallet by an arcane constitutional case before the U.S. Supreme Court. The case also could undermine the underpinnings of important federal agencies Americans rely on every day.
It’s crucial the court puts aside its politics and gets this ruling right.
At issue is a lawsuit challenging the way revenue is raised to run the Consumer Financial Protection Bureau, an agency that protects consumers from all sorts of sneaky hidden fees and other financial abuses.
The lawsuit was brought by trade groups representing the payday loan industry, which is known for some pretty hefty interest rates. Some federal courts rejected the constitutional challenge, but in October, three Trump appointees on the Fifth Circuit sided against the CFPB. The lawsuit, which the Supreme Court took up last week to be heard in the next term, is a totally transparent effort to undermine the agency.
Since the agency was created in 2011, it has vigilantly gone after junk fees, predatory student loan interest, devious car loans, shifty credit cards and underhanded home mortgage practices that can devastate consumers’ finances. Without the bureau, there wouldn’t be as prominent a forum to call attention to how some financial institutions pick the pockets of their customers.
The CFPB is one of America’s great innovations of the last 12 years. Without the CFPB, who would monitor the financial industry, regulate it and take action when there is bad behavior?
The normal legislative process is slow, and bad actors can devise new schemes more quickly than even a functioning Congress can respond to them. Moreover, given how much money from business interests flows into the coffers of congressional races, it can be hard to get lawmakers to take on the sources of their donations.
State attorneys general have power to investigate financial abuses, but generally they can only enforce state laws, and in most cases they do not have the staff resources the CFPB does. The CFPB can go in and look at the books and records of many companies to see if they are violating the law. A bill has been introduced in the Illinois General Assembly to form a state agency patterned after the CFPB, but it has not made it out of committee.
A flimsy argument
At the heart of the federal legal case is a constitutional phrase saying, “No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The plaintiffs argue that makes the CFPB unconstitutional because its funding is routed through the Federal Reserve Board instead of by direct congressional appropriations.
But following that logic would jeopardize a host of federal agencies that similarly don’t get direct appropriations, such as the Fed itself, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.
Should the court throw all those agencies into turmoil, perhaps jeopardizing their existence? No. Moreover, the CFPB actually is funded by Congress, through the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The argument against its funding is transparently flimsy.
The CFPB covers only banks and financial services, which is why some other businesses continue to charge junk fees. Some hotels, for example, tack on “resort charges” of perhaps $45 to a bill without mentioning those charges until it is time to check out.
Should such practices be allowed to spread back into the financial services community? If the Supreme Court rules against the CFPB, it would be a boon to many bad corporate actors and would have a deleterious effect on Americans. Many junk fees have disappeared because the Consumer Financial Protection Bureau is on the beat. The CFPB also issues reports on how the financial services industry treats consumers.
The fine print in many financial documents is difficult for many consumers to decipher, and when they do find they’ve been scammed, it can cost more to hire a lawyer than the amount of money they might recover. As former Court of Appeals for the Seventh Circuit Judge Richard Posner wrote in 2004, “[O]nly a lunatic or a fanatic sues for $30.” But if thousands or millions of people are getting unfairly hit with $30 fees, the CFPB can step in and protect them.
In his State of the Union address, President Joe Biden called on Congress to pass the Junk Fee Prevention Act, which would reduce hidden or unexpected charges from service providers not under the CFPB’s purview. That Biden felt it necessary to call out such practices is a testament to why ordinary Americans need the CFPB to remain a bulwark, protecting them from the many scammers who would prey on them.
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