The Fifth Circuit said the CFPB is unconstitutional! Wait. Hang on a second.

The Fifth Circuit Court of Appeals did not say the Bureau itself is unconstitutional, but rather ruled that the Bureau’s funding structure is unconstitutional (in their October 19, 2022 Opinion in Community Financial Services Association of America v. CFPB).

So, what does this mean for the Bureau, your agency partners, and for you?

Don’t make any sudden moves

“This decision doesn’t mean that every rule the CFPB has created since its inception is automatically invalidated,” according to Missy Meggison, General Counsel and Editor at The iA Institute, and it doesn’t mean the CFPB is going away.

In fact, the Court held that “though the boundaries set for the CFPB’s rule-making authority are broad, they exist and are delineated.”

There are ways for the CFPB to remedy this ruling, the first of which will likely be appealing the decision. Unwinding 10 years of impactful activity would be extremely difficult, if not impossible, and according to Stefanie Jackman, Partner at Troutman Pepper, “the easiest solution for the Court may be to simply strike the language in Dodd-Frank exempting the CFPB from the appropriations process,” which would mean the Bureau would have to operate within the appropriations process, but could continue making rules.

Your agency partners still need to abide by the law

Make it clear to your agency partners: this ruling should not change their approach to compliance with the law. If we see changes at the CFPB as a result of this ruling, it will be increased accountability and decreased politicking, not a removal of all consumer protections related to debt collection.

“As much as industry did not like the CFPB, I do not think, after a decade, it was ever about its existence, but how it went about regulating the consumer financial services marketplace,” says Joann Needleman, Member at Clark Hill.

…and so do you, too.

If the Court had not found the funding structure of the CFPB to be unconstitutional, the subject of the lawsuit, the 2017 Payday Lending Rule, would have survived. The content of the rule wasn’t the problem. Upending your compliance processes would be disastrous. This ruling is not a signal to make any major changes to how you manage compliance with the Consumer Financial Protection Act, or any opinions or guidelines that come from the CFPB.

So…nothing has changed?

Not necessarily. As Meggison says in her article, “this case may be the catalyst of some changes at the CFPB and certainly gives those inside and outside of the Fifth Circuit Court of Appeals reason to move to dismiss CFPB actions.”

In a best case scenario, the CFPB becomes subject to appropriations, and it will have to operate with more accountability and transparency. It will no longer be “doubly insulated” from the purse strings of Congress, which could mean we will see a more measured and collaborative environment, with less unilateral action when it comes to issuing new regulations. And that is certainly a positive.

For more, see The CFPB and the Fifth Circuit Ruling: 3 Things You Need to Know.

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