This article is the second in a three-part series addressing a seminal Fifth Circuit case now pending before the U.S. Supreme Court. The case, CFSA v. CFPB, is scheduled for oral argument on October 2, 2023.
In last week’s post, Myth No. 1, we explained more than a decade of history, both legislative and
This article is the first in a three-part series addressing a seminal Fifth Circuit case that is now pending before the U.S. Supreme Court. Each week, we will debunk each myth and address the implications for consumer finance regulation going forward.
Myth No. 1: CFSA’s matter presents a novel attack on the Bureau’s constitutionality
Background
As many readers are aware, the plaintiffs in Consumer Financial Services Association of America, Ltd, et al. v. Consumer Financial Protection Bureau et al. challenged the Consumer Financial Protection Bureau’s (“CFPB or Bureau”) new regulation concerning the payday loan industry. In federal court in Texas, the plaintiff also had asserted that the Bureau’s funding mechanism was unconstitutional, but it lost this argument. On appeal last fall however, the U.S. Court of Appeals for the Fifth Circuit reversed, concluding that legislative appropriations are required before the agency’s expenditure. The Fifth Circuit held that because the Bureau’s budgets are not subject to appropriations, its funding mechanism violated the Appropriations Clause of the Constitution. The case is pending before the U.S. Supreme Court and oral argument is now set for October 3, 2023.
There is a broader trend in financial regulatory developments to implement traditionally consumer-style borrower protections in commercial lending. This is occurring at both the federal and state levels, each of which is discussed below.
Federal: CFPB Finalizes Rulemaking to Regulate Small Business Lending
For the first time since the formal launch of the Consumer Financial
We recently had a chance to speak to The Independent and Forbes for articles on the impending regulatory response to the FTX bankruptcy, which will undoubtedly affect the entire crypto sector. A couple of additional thoughts worth mentioning are as follows:
The extended Crypto Winter is likely to hasten regulatory clarity with respect to crypto. While the Congressional bills introduced thus far have favored the Commodities Futures Trading Commission (CFTC) as the chief crypto regulator, the extended crisis in the crypto sector have punched up serious concerns regarding investor protection, which is the focus of the Securities and Exchange Commission (SEC). As a result, we’re likely to see a greater role for the SEC in terms of crypto regulatory oversight.
A new CFPB advisory opinion drills down on what consumer reporting agencies must do to address discrepancies in consumers’ credit reports, in order to protect consumers and remove obstacles to them getting credit. And while the Bureau gives specific examples of items requiring correction, the opinion emerges in the bigger context of a heightened interest in expanding the categories of businesses that could constitute a consumer credit company and clarifies the work required of such companies vis-à-vis other actors in the consumer credit ecosystem such as furnishers or users of consumer data reports.
On Oct. 20, 2022, the Consumer Financial Protection Bureau issued a substantial Advisory Opinion interpreting Section 607(b) of the Fair Credit Reporting Act (FCRA). Section 607(b) is one of many technical provisions imposing specific compliance obligations on consumer reporting agencies (CRAs). The Advisory Opinion indicates that if a CRA or a company engaged in consumer reporting activities neglects to remove logical inconsistencies from consumers’ credit reports, such a company will be deemed to have violated the FCRA’s mandate to build and carry out “reasonable procedures to assure maximum possible accuracy” of information pertaining to consumers whose credit information or personal attributes are being reported.