What the Supreme Court Ruling Means for Other Consumer Bureau Actions

The Supreme Court’s ruling on Thursday upholding the Consumer Financial Protection Bureau’s funding mechanism will clear the way to resume a score of court cases that involve the agency but were frozen during the legal challenge, potentially including new rules for payday lenders and penalties against a money transmitter. But the ruling falls far short of eliminating the bureau’s legal obstacles.

Immediately after the ruling was announced, lawyers for the bureau, which is charged with preventing consumer abuse in the financial industry, began preparing dozens of legal filings to try to unfreeze its activities. Among them are requests to federal judges to end stays on new rules and on subpoenas to financial firms. While the Supreme Court’s ruling should resolve a few of the stays, the bureau will still struggle to overcome other roadblocks.

“The C.F.P.B. has now put all the existential threats to bed, but the next phase of this is the trench warfare of fighting the industry rule by rule,” said Graham Steele, a longtime financial regulation lawyer and former Treasury Department official.

He noted that Justice Samuel A. Alito Jr.’s dissent cited three recent consumer bureau actions that, in Justice Alito’s view, would be “major changes” in consumer protection law. “Congress did not specifically authorize any of them,” the justice wrote.

That language signals probable challenges under the “major questions doctrine,” a fairly new but increasingly invoked legal principle that bars agencies from undertaking politically or economically significant actions without explicit approval from Congress.

The bureau’s troubles are most likely to continue in part because of rulings from the U.S. Court of Appeals for the Fifth Circuit, where financial industry trade groups have filed a flurry of lawsuits challenging the agency’s actions. For several years, federal judges in the Fifth Circuit, which encompasses Texas, Louisiana and Mississippi, have been freezing or striking down bureau actions using broad rulings, and the appeals panels have most often upheld or even expanded on those lower-court rulings.

“The Fifth Circuit has really become a vehicle for launching what would otherwise be completely off-the-wall — you know, not in the ballpark of standard legal consensus — arguments into the national conversation,” said K. Sabeel Rahman, a Cornell Law School professor and former official at the White House Office of Information and Regulatory Affairs.

Bank trade groups quickly pointed out that they had other issues with the regulator.

The Consumer Bankers Association was heartened that this important legal question has been resolved,” said Lindsey Johnson, the group’s president, but she added that the Supreme Court decision “should not be considered a popular endorsement of the C.F.P.B.’s recent and seemingly political rulemakings.”

Jeremy Kress, assistant professor of business law at the University of Michigan Ross School of Business, said comments like Ms. Johnson’s indicated that bank trade groups would press their concerns through administrative law channels. Government agencies must follow detailed rules when drafting regulations, and industry groups frequently accuse the consumer bureau of breaking them.

“Bank trade groups still have a lot more ammunition to bring this fight to the Fifth Circuit,” Mr. Kress said.

Here is a list of major actions by the bureau that were on hold as courts awaited the Supreme Court decision.

This could be the first case to spring back to life. A rule sharply limiting most credit card late fees was scheduled to take effect this week, but industry groups immediately sued to block it. Judge Mark Pittman, the federal judge in Texas hearing the case, issued an injunction preventing the rule from taking effect, citing the Fifth Circuit’s decision that the consumer bureau’s funding mechanism was unconstitutional. With that decision now overturned, Judge Pittman could end the injunction — though the Fifth Circuit could again step in.

The purpose of this rule is to offer regulators a way to look at whether banks were making loans fairly or were discriminating against certain groups, including racial minorities, in their lending decisions. Banking trade groups argue that sharing data on their small-business lending would be too costly and burdensome for them.

In July, the bank groups won a bid to suspend the rule. Since then, both sides have filed briefs in support of their positions, but the judge overseeing the case had waited to consider them. The Supreme Court decision allows the case to proceed.

In 2022, the bureau informed banks and other lenders that they would need to submit to regular tests to determine if their treatment of customers might inadvertently disadvantage certain groups, including racial minorities. Trade groups quickly challenged the move on several grounds. The bureau hadn’t given financial firms adequate notice that it was considering the move, they said. They also argued that it had no authority to check for discrimination.

A federal judge in the Eastern District of Texas, J. Campbell Barker, seized on the second claim, ruling that the bureau had failed to show “clear congressional authorization for the power it claims.”

The consumer bureau vowed to appeal the ruling, but agreed to wait until after the Supreme Court’s decision. It will now have to argue to a panel of the same judges that deemed its funding structure unconstitutional that Judge Barker made a mistake in his determination.

The consumer bureau worked for years to complete a sweeping set of restrictions on the payday lending industry — but before they took effect, President Donald J. Trump’s appointees to the bureau delayed, and then gutted, the new rule. Only minor provisions survived, including one preventing lenders from trying to repeatedly take funds from a borrower’s empty bank account.

Trade groups sued to block the watered-down rule as part of the lawsuit that the Supreme Court decided on Thursday. The ruling clears the way for the payday lending rule to take effect.

More than two years ago, the consumer bureau sued FirstCash, claiming that the pawnshop chain violated limits on the interest rate that can be charged on loans to active members of the military. The case had been suspended because of the Fifth Circuit’s now-overturned decision.

Another case, in which the bureau accused the international money transfer company MoneyGram of illegal errors and delays, was similarly stalled. That case and others are now able to move forward.

The bureau is also now likely to get approval from federal judges to collect information from a group of payday and other small-dollar lenders, including Check City Partnership, Financial Asset Management, Purpose Financial, Community Loans of America, in investigations it is conducting into possible violations of its rules. It is also awaiting a go-ahead on an information request it sent to National Credit Systems, a debt collector that it believes may have violated rules related to debt reporting and fair credit.

Representatives of Check City, Community Loans of America, Financial Asset Management, FirstCash, MoneyGram and Purpose Financial did not immediately respond to requests for comment. A lawyer for National Credit Systems declined to comment.

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