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Supreme Court to Hear Case Challenging CFPB’s Funding Structure

The U.S. Supreme Court has agreed to hear arguments in a case challenging the constitutionality of funding for the Consumer Financial Protection Bureau (CFPB). However, a decision is not expected until the spring of 2024.

Established by the Dodd-Frank Act after the 2008 global financial crisis, the CFPB is funded by the Federal Reserve, not Congress. Since its inception, the CFPB has recovered approximately $15 billion for customers, including a recent record $1.7 billion civil fine, in addition to $2 billion in mandated customer reimbursements, imposed by the CFPB on Wells Fargo for abuses related to customer accounts.

In October of 2022, the 5th Circuit Court of Appeals ruled in the case of Community Financial Services Association of America Ltd. (CFSA) v. CFPB that the Bureau’s funding model is unconstitutional, and instead should, be appropriated by Congress from the U.S. Treasury.

“This will allow the Supreme Court to surgically remove any unconstitutional funding provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, leaving the balance unaffected," said Jay G. Beitel, Principal with Polunsky Beitel Green. "I believe the court will do what they stated in Seila L. LLC v. Consumer Fin. Prot. Bureau, 207 L. Ed. 2d 494, 140 S. Ct. 2183, 2209 (2020): 'Generally speaking, when confronting a constitutional flaw in a statute, we try to limit the solution to the problem, severing any problematic portions while leaving the remainder intact.' Judicial or legislative reform of the act will fill the gap to enable funding.”

The CFSA and Consumer Service Alliance of Texas challenged the validity of the Bureau’s 2017 Payday Lending Rule. The plaintiffs contended that in promulgating that Rule, the Bureau acted arbitrarily and capriciously and exceeded its statutory authority. They also contend that the Bureau was unconstitutionally structured, challenging the Bureau Director’s insulation from removal, Congress’s broad delegation of authority to the Bureau, and the Bureau’s unique, double-insulated funding mechanism. The district court rejected these arguments.

“This baseless lawsuit is the crown jewel in a long-running, highly organized effort by greedy industries and right-wing politicians in their pocket to take out the CFPB because it works so well to protect consumers from abuse,” said Liz Zelnick, Director of Economic Security and Corporate Power for Accountable.US, a private government watchdog group.

Earlier today, the CFPB permanently banned RMK Financial Corporation, which does business as Majestic Home Loans, from the mortgage lending industry by prohibiting RMK from engaging in any mortgage lending activities or receiving remuneration from mortgage lending. In 2015, the CFPB issued an agency order against RMK for, among other things, sending advertisements to military families that led the recipients to believe the company was affiliated with the United States government. Despite the 2015 order’s prohibition on these and other actions, the company engaged in a series of repeat offenses, including disseminating millions of mortgage advertisements to military families that deceptively used fake U.S. Department of Veterans Affairs (VA) seals, the Federal Housing Administration (FHA) logo, and other language or design elements to falsely imply that RMK was affiliated with the government. In addition to the ban, RMK will also pay a $1 million penalty that will be deposited into the CFPB’s victims relief fund.

Late last week, the Bureau also took action against a web of corporate entities operating under TMX Finance, broadly known as TitleMax, for violating the financial rights of military families and other consumers in providing auto title loans. The CFPB found that TitleMax violated the Military Lending Act by extending prohibited title loans to military families and, oftentimes, by charging nearly three times over the 36% annual interest rate cap. TitleMax tried to hide their unlawful activities by, among other things, altering the personal information of military borrowers to circumvent their protected status. The CFPB also found that TitleMax increased loan payments for borrowers by charging unlawful fees. The CFPB’s order ends TitleMax’s illegal activities, and requires the company to pay more than $5 million in consumer relief and a $10 million civil money penalty.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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