A Consumer Champion Takes a Hit
Payday lenders land key punch in move to stymie effective regulation
The Consumer Financial Protection Bureau (CFPB) was designed to be an independent regulator protecting consumers in the financial marketplace.
This includes working to address issues around banking, credit, lending, and other key financial transactions.
The agency has been aggressive of late, taking strides to address issues around credit reporting, junk fees, overdraft fees, and deceptive marketing and lending practices.
Here are some examples:
Protecting College Students from Co-Branded Credit Cards
Regions Bank Fined $200 Million in Surprise Overdraft Fee Scandal
Now, the agency is coming under fire from the trade association that represents payday lenders.
Jason Mikula of Fintech Business Weekly reports that the 5th Circuit Court of Appeals ruled in favor of payday predators in a move that could significantly restrain the reach of the CFPB.
But now, the consumer protection agency faces a potentially catastrophic setback — not just on its forward-looking agenda, but on previous rules and enforcement actions.
The proximate cause? Last week’s ruling in the Fifth Circuit in Community Financial Services Association of America, Limited vs. Consumer Financial Protection Bureau. The CFSAA, a trade association representing payday lenders, filed suit seeking the reversal of the bureau’s “payday loan rule.”
While the CFSAA appeal made several arguments for why the rule should be reversed, the one the Fifth Circuit found convincing was the argument that the CFPB’s funding structure is unconstitutional.
Of course, the CFPB is likely to appeal the decision and the process could take some time to sort out, but as Mikula notes:
In the meantime, a cloud of uncertainty will hang over the bureau. That cloud is intensified by the fact that Fifth Circuit’s ruling invalidates the CFPB’s payday rule — a result that would seem to cast doubt on all rules and guidance the CFPB has issued, as well as enforcement and other actions undertaken by the bureau.
Advocacy Groups Speak Out
Not surprisingly, advocacy groups representing consumers were quick to speak out against the decision. It seems that just as consumers were scoring victories that were leveling the playing field in the financial marketplace, their champion was hamstringed.
Here’s how Public Citizen responded:
The Fifth Circuit’s dangerously misguided and outrageous decision jeopardizes the most important consumer protection agency created in the last 50 years and the rules, guidelines, enforcement actions and consumer education that the Consumer Financial Protection Bureau has issued and undertaken.
The Fifth Circuit’s decision ignores long-established and long-accepted practice of funding financial regulatory agencies, and the prior review of many other courts, in order to decree that the funding mechanism of the CFPB is unconstitutional.
If upheld, this decision is a gift to scammers and rip-off artists, payday lenders and Big Banks. If it stands, it will go down in history as one of the most anti-consumer court rulings in history.
Other groups and pro-consumer lawmakers took to social media to decry the ruling.
The bottom line: If this ruling is allowed to stand, a pro-consumer regulatory body may soon be subject to the whims of congressional politics — meaning less protection for consumers and more abuse by financial bad actors.
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