Appeals Court Ruling on CFPB Threatens to Perpetuate Predatory Financial Practices

October 20, 2022 — Press Release

5th Circuit Decision Jeopardizes a Decade of Consumer Protections 

WASHINGTON – In an outrageous opinion that endangers efforts to protect American consumers from big banks and predatory actors, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit ruled this week that the funding mechanism of the Consumer Financial Protection Bureau (CFPB) is unconstitutional. The structure, which advocates argue is legal, was adopted by Congress to insulate the Bureau from well-monied lobbyists and powerful interests to enable it to protect the American public.

In response to the ruling, which also struck down a 2017 rule aimed at protecting consumers from overdraft fees triggered by predatory payday and other small dollar loans, Lauren Saunders, associate director of the National Consumer Law Center, issued the following statement: 

“A panel of the Fifth Circuit Court of Appeals, composed entirely of appointees of President Trump, has voted to emasculate the only federal agency devoted to protecting the American public against malfeasance and violations of the law by predatory lenders, big banks, credit reporting agencies and others. 

“By claiming that the CFPB’s funding structure must be subject to congressional appropriation, industry lobbyists hope to reclaim their power to protect unfair practices and to use congressional donations and back-room deals to perpetuate predatory financial practices that target families across the country.

“It is no surprise that the CFPB has been under attack since its creation following the foreclosure crisis, as the CFPB has delivered over $13.5 billion in relief to 175 million people through enforcement actions, has adopted rules to make mortgages and other financial products safer, and has stopped financial companies across the spectrum from engaging in unfair, deceptive and abusive practices.

“Notably, the court found that the CFPB acted legally in adopting the rule that prevents payday lenders from subjecting people to cascading nonsufficient funds and overdraft fees when post-dated checks for predatory, unaffordable loans are repeatedly re-deposited after they bounce. But the court struck down the rule because – like everything the CFPB does – the funding for the CFPB’s work came from the funding stream Congress authorized to keep the CFPB independent and enable it to do its job of protecting consumers. This decision jeopardizes the CFPB’s ability to stand up to financial predators and stop unfair practices, hidden fees, and other abuses in credit reports, credit cards,  mortgages, and student loans.

“I expect the CFPB to appeal this decision to the full en banc panel of Fifth Circuit judges, and the case will ultimately end up before the U.S. Supreme Court. The attacks on the CFPB’s funding are without merit, and the Fifth Circuit’s decision is contrary to those of the other courts that have considered the constitutionality of the CFPB’s funding structure. Responsible banks and financial players, like consumers, benefit from the CFPB’s work to level the playing field, and the decision must be reversed.”