Self-Help Defends CFPB in Supreme Court Case

Only two credit unions were among hundreds of people and organizations that filed briefs in support of the CFPB as it defends itself in the U.S. Supreme Court against a lawsuit filed by payday lenders.

The court will be hearing arguments this fall on an appeals court ruling that would invalidate rules issued by the CFPB since its founding in 2010. The appeals court ruled that the CFPB’s funding structure was unconstitutional because its funds do not come from annual congressional appropriations, but instead from systems set up by Congress to make them independent agencies, like the Federal Reserve, FDIC and NCUA.

The CFPB and its supporters have argued that the appeals court’s reasoning has no precedent, and that funding structures for independent agencies have been approved by Congress since the time of the nation’s birth.

One joint brief includes Self Help Federal Credit Union and its state-charted sister, Self Help Credit Union, both community development credit unions based in Durham, N.C. It also includes its policy affiliate, The Center for Responsible Lending, also based in Durham.

“The CFPB’s funding structure is constitutional and critical to ensuring that it can carry out its consumer protection mission free from undue industry influence,” the Self-Help brief said.

It said the CFPB’s work has been “responsive to the unique needs of smaller financial institutions, including credit unions and CDFIs like the Amici, allowing these institutions to compete more effectively for consumers’ business against larger institutions.”

“The CFPB’s budgetary mechanism creates stability and predictability and enables the Bureau to discharge its functions in an independent and impartial manner. This benefits CDFIs, credit unions, and their customers who typically have less access to the political decision makers than large financial institutions,” the CFPB brief said.

Self Help and its allies filed their brief on May 15, the deadline for friend-of-the-court briefs in support of CFPB.

CUNA and NAFCU said they plan to file a joint brief July 10, the deadline for briefs in favor of the Community Financial Services Association of America, which represents payday lenders and filed the original lawsuit in 2017 challenging a payday lending rule from the CFPB.

CUNA has long supported placing the CFPB under the traditional appropriations process. NAFCU has long held that credit unions should be exempt from CFPB jurisdiction and instead be regulated solely by the NCUA.

It’s not clear how far CUNA and NAFCU will go in support of the payday lenders. NAFCU officials warned in March that a ruling vacating CFPB rules might create chaos by undermining rules that credit unions use to close mortgages and other loans.

The vast majority of briefs filed in favor of the CFPB supported the CFPB in its entirety.

The exception was the joint brief from the Mortgage Bankers Association (MBA), the National Association of Realtors and the National Association of Home Builders of the United States.

Their brief supported neither party nor the merits of CFPB rules. Instead, they said they filed the brief “to highlight the potentially catastrophic consequences that a decision drawing those rules into doubt could have on the mortgage and real-estate markets. Thus, this Court should take care not to call into question current CFPB regulations, including those governing the real-estate financing industry, which could lead to immediate and intense disruption to the housing market, harming both consumers and the broader economy.”

If the Supreme Court’s decision were to challenge the validity mortgage-related rules by the CFPB, the MBA brief said “it could set off a wave of challenges and the housing market could descend into chaos, to the detriment of all mortgage borrowers. Lenders, servicers and consumers have operated by the CFPB’s guideposts for more than 10 years, and without those rules substantial uncertainty would arise as to how to undertake mortgage transactions in accordance with federal law.”

The CFPB was established by Congress in 2010 through the Dodd-Frank Wall Street Reform and Consumer Protection Act to strengthen regulations found lacking in the financial crisis that preceded the Great Recession of 2008.

The filers in support of the CFPB included law professors, regulatory experts, consumer groups and 144 current former members of Congress. Here are some excerpts:

• 134 current and 10 former members of Congress: “The choices Congress made in funding the CFPB — a standing appropriation, capped lump sum and funding sources other than general revenue — are commonplace, not controversial. And have been common since the early days of the Republic. If anything, much of the current practice regarding appropriations committees developing annual appropriations acts is a relatively new innovation. Annual appropriations are also far from the most common way to appropriate funds, representing less than one-third of federal outlays.”
• Financial regulations scholars: “If upheld, the court of appeals’ decision would disrupt the market for consumer credit and expose the economy to recession. A defunding of the CPFB would produce a regulatory vacuum that undermines federal consumer-protection laws. These effects would reach entities regulated and protected by the other federal bank regulators, which are funded in the same way as the CFPB.”
• Professors of history and constitutional law: “While praising Congress’s appropriations power, Respondents come to bury it. Like the Fifth Circuit, they would transform the Appropriations Clause from a legislative check on executive power into a judicial check on legislative power, replacing Congress’s plenary discretion over spending with nebulous, judge-fashioned restraints. Those limits are absent from the Clause’s text, unsupported by its history, and incompatible with legislation dating to the Founding.”