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Business News/ Special Report / Supreme Court Case Could Upend Rules for Mortgages, Credit Cards and More
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Supreme Court Case Could Upend Rules for Mortgages, Credit Cards and More


A group of payday lenders are set to argue that some rules written by the Consumer Financial Protection Bureau are invalid because the agency’s funding system is unconstitutional.

The Consumer Financial Protection Bureau was created to safeguard consumer welfare following the 2008-09 financial crisis.Premium
The Consumer Financial Protection Bureau was created to safeguard consumer welfare following the 2008-09 financial crisis.

WASHINGTON—A lawsuit before the Supreme Court on Tuesday could threaten more than a decade’s worth of rules governing the mortgage industry, credit cards, student-loan companies and more.

A group of payday lenders will argue before the court that some rules written by the Consumer Financial Protection Bureau are invalid because the funding system Congress designed for the agency in 2010 was unconstitutional.

If the court agrees with them, legal experts and some mortgage and real estate groups say the result would destabilize the regulations for a swath of financial products Americans use. The bureau might have to suspend virtually all activities and stop enforcing its rules.

“The ensuing regulatory chaos would stifle credit markets, destabilize banks, and likely throw the economy into recession," Adam Levitin and Patricia McCoy, law professors at Georgetown University and Boston College, wrote in a friend-of-the-court filing supporting the agency.

The CFPB, created by Congress as part of the 2010 Dodd-Frank financial overhaul, was intended to safeguard consumer welfare following the financial crisis. Democrats structured it as a bureau with a single director, not a bipartisan commission, and gave it a funding stream from the Federal Reserve system rather than annual appropriations.

The agency quickly published a raft of rules and ran into criticism from industry groups and Republicans in Washington, who said, among other objections, that its organization meant it essentially didn’t answer to Congress.

In 2020, the Supreme Court agreed with a debt-relief company that the bureau’s structure made it unaccountable to the executive branch, ordering a change so that the president could remove the CFPB director without cause. The court declined, however, to abolish the agency altogether, as some Republicans wanted.

The CFPB’s funding structure also was intended to insulate it from political interference—in this instance, from Congress rather than the White House. Under the law, the CFPB director sets a budget he or she determines is necessary to fund the agency’s mission and the funding comes from the Federal Reserve, subject to certain caps. The cap for the fiscal year that began Sunday is $785.4 million, according to a bureau budget document.

The payday lenders whose case has reached the Supreme Court challenged 2017 rules that required them to vet the ability of consumers to repay the loans and limited so-called rollovers, where customers take out new loans to repay old ones—a practice that often leads to snowballing fees.

Last October, the Fifth U.S. Circuit Court of Appeals agreed with the lenders, discarding the rules because it found the bureau’s funding structure violated a constitutional provision giving Congress authority over appropriations.

That decision conflicted with other lower-court rulings, and the Biden administration asked the justices to review it.

CFPB officials say their funding mechanism isn’t meaningfully different from that of any other federal banking agency, none of which is subject to annual appropriations from Congress.

The court could agree with the bureau or take a narrower approach than the Fifth Circuit did. If the justices uphold the appeals court’s decision and issue a sweeping ruling, they could sow confusion, legal experts and several industry groups say.

Many of the CFPB’s rules create so-called safe harbors, or parameters under which mortgage companies, credit-card firms and other lenders are generally assumed to be in compliance with legal standards.

Some industry groups fear those safe harbors would be jeopardized if the CFPB’s rules are tossed out, subjecting them to lawsuits. Banks and other firms might respond by slashing lending and raising interest rates. Credit could become scarce, putting into a deep freeze the markets that banks and other firms use to package mortgages and other loans, financial experts have warned.

The Mortgage Bankers Association, the National Association of Home Builders and the National Association of Realtors wrote in a joint friend-of-the-court filing that the multitrillion-dollar U.S. mortgage and real-estate markets could stop functioning normally should a spate of CFPB rules for that market become invalid.

The high court should issue a “circumscribed ruling" to avoid “potentially catastrophic consequences," the groups wrote in their filing.

Other industry groups, meanwhile, have urged the court to curb the CFPB. A brief filed by the U.S. Chamber of Commerce, the American Bankers Association and other organizations argues that the agency’s independence has fostered “a track record of overreach to the detriment of industry and consumers alike," including through burdensome investigative demands.

To avoid disruption in the marketplace, the chamber’s brief suggests that a decision invalidating the CFPB’s funding structure shouldn’t take effect immediately, but rather give Congress enough time to adopt an alternative system that passes constitutional muster.

The CFPB has been politically polarizing since its inception, when President Barack Obama tapped then-Harvard law professor Elizabeth Warren to set it up.

Now a U.S. senator, Warren urged the high court to uphold the existing funding for the CFPB and other bank regulators, speaking on Thursday at the Center for American Progress, a progressive Washington think tank. The Massachusetts Democrat warned of dire consequences if it doesn’t. “Instead of regulators that watch out for the safety and soundness of our economy, we’ll have regulators who bow to the wishes of the most politically connected financial institutions," she said.

Write to Andrew Ackerman at and Jess Bravin at

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