Since its creation roughly 14 years ago, the Consumer Financial Protection Bureau has faced lawsuits and political and legal challenges to the idea of whether the Federal Government's aggressive consumer financial watchdog agency should be allowed exist at all.
Those challenges came to an end this week, when the Supreme Court ended the last major legal challenge to the bureau's authority, ruling 7-2 that the CFPB could in fact draw its budget from the Federal Reserve instead of the annual Congressional appropriations process.
The opinion reversed a lower court's ruling and drew praise from consumer advocates, as well as some in the banking industry, who argued that upending 14 years of the bureau's work would cause chaos in the financial system.
Now cleared of any legal ambiguity, CFPB Director Rohit Chopra told reporters Friday that the bureau plans to hire additional investigators and has already filed legal motions on roughly a dozen cases pending against companies accused of wrongdoing that have been held up due to the Supreme Court case.
“The court's ruling makes it crystal clear that the CFPB is here to stay,” Chopra said. “The CFPB will now be able to forge ahead with our law enforcement work.”
Chopra and other senior CFPB officials said they plan to beef up the size of bureau's law enforcement office likely to a staff of 275. The bureau plans to address other matters like pawn shops, medical billing, credit reporting and financial data issues through its rule-making authorities as well.
The CFPB, the brainchild of Democratic Sen. Elizabeth Warren of Massachusetts, was created after the 2008 financial crisis to regulate mortgages, car loans and other consumer finance. It has long been opposed by Republicans and their financial backers.
The case that the Supreme Court addressed on Thursday was, in short, an existential threat to the bureau. The case, CFPB v. Community Financial Services Association of America, was brought by payday lenders who object to a bureau rule that limits their ability to withdraw funds directly from borrower's bank accounts.
The CFSA, the industry lobbying group for the payday lending industry and a longtime target of the CFPB, had argued that way the bureau was funded was unconstitutional. Lower courts, most notably the notoriously conservative Fifth Circuit Court of Appeals, had taken the payday lending industry's argument to call into question whether any of the CFPB's work over the last decade was legal in the first place.
The bureau's law enforcement work is one of the most significant parts of the CFPB's operations. Since its creation, the bureau has returned more than $20 billion to consumers and has fined banks billions of dollars for wrongdoing. Because of this, the case had also stifled the ability for the CFPB to do its job, bureau officials told reporters. Several companies would not respond to investigative demands from the CFPB, citing the pending Supreme Court case.
One CFPB official described the case as a “cloud” hanging over the bureau's enforcement office.
Of the 14 cases that have been put on hold by lower courts, roughly half of them involve payday lenders or other financial services companies that were accused of violating laws like the Military Lending Act, which is designed to protect servicemen and women from exploitative financial products often sold near bases. Those cases will now move forward, the bureau said.
Even significant parts of the banking industry were against the Fifth's Circuit's ruling about the bureau's constitutionality.
In a statement after the ruling, the Mortgage Bankers Association said that while it disagrees with the bureau's work oftentimes, it was “relieved that the Supreme Court avoided a ruling that would have disrupted the housing and mortgage markets and harmed the economy and consumers.”
"A (wrong) decision ... would have invalidated the Bureau's previous rules could have had severe consequences for single-family and multifamily mortgage markets.”
