Mortgage Bankers, Bankers and Real Estate Agents are Protected from Liability Under the Pruse: The Case of the CFPB

“The Constitution gives Congress the power of the purse,” requiring government spending to be “pursuant to funds appropriated by Congress,” she says. The creators of the CFPB wanted to avoid operating pursuant to appropriated money.

The government appealed to the Supreme Court because many other agencies are similarly funded, including the Federal Reserve itself; the Federal Deposit Insurance Corp., which insures bank deposits; the Office of the Comptroller of the Currency, which charters and regulates all national banks; and potentially even Social Security and Medicare, which are funded by a specific tax.

“If the Supreme Court says that Congress doesn’t have the power to set up government agencies and laws without going through appropriations, understand, not only do all the banking regulators fall on their faces, Social Security and Medicare are now at risk,” Warren says, noting that none of these agencies are financed through the appropriations process. Rather, they are all financed in different ways–Social Security, for instance through a separate tax. So the implications of the CFPB case “could echo through the lives of every person in America,” Warren says.

That is undoubtedly why a total of 30 friend-of-the-court briefs have been filed in the CFPB case. The briefs filed in favor of the CFPB are not just by the usual suspects, but by a variety of groups that don’t usually side with regulators. The mortgage bankers, the homebuilders, and the realtors associations warn that a decision against the CFPB could send the housing market into “chaos.”

Representing them, lawyer Robert Loeb notes that the regulations established by the CFPB for residential mortgages provide a uniform set of rules that protect not just consumers, but also the people issuing and servicing loans. They are protected from liability if they follow the rules.

There could be a freeze-up of the mortgage system if those rules were to disappear, and that could have severe consequences for consumers, bankers, and the economy as a whole.

CFPB and Payday Lenders: The Case Against Its Role in Court-Delivered Military and Veterans Laws

Also siding with the CFPB is a coalition of 15 military and veterans organizations—groups that don’t normally file in the Supreme Court. Congress gave the bureau authority to enforce laws aimed at protecting the financial well-being of servicemembers and their families, as well as veterans, when it created the Bureau, according to the Military Officers Association of America.

“If you have a law that’s on the books to protect servicemembers and no real policeman, then there’s no real effect on them,” he says. “The overall impact of that is frightening to think about.”

Now, its survival is being challenged by payday lenders who have often reaped enormous profits from people of limited means who need a short-term loan. Before the advent of the CFPB, payday lender rolled over the amount due and tacked on fees as frequently as two days a week in order to cause borrowers to rack up huge debt on small loans.

The agency’s side of the business world is more or less on their own in this case, though it’s not quite as large as the one on the banks’ side. Lawyer Walker is not surprised. “Sometimes it takes a renegade like these payday lenders to bring this kind of structural challenge to a federal agency,” she observes.

The structure of the CFPB was challenged in 2020 by a law firm, who were accused of deceiving clients. The law firm was able to argue that the leadership structure was unconstitutional. The court’s conservatives were very hostile to the agency in an oral argument.

Chief Justice John Roberts noted that the people don’t even have to go to congress to get their money. “I think we should factor that into the substantive question.”

Whether Roberts and the court’s other conservatives want to go further now, opening up a potential Pandora’s box of legal questions involving other agencies, remains to be seen.

Hearing the Case for a New Consumer Financial Protection Agency: Justice Scales in the Courts of First Amendment and Second Amendment Injunction

In an attempt to protect consumers, the CFPB enacted a rule to limit these repeated fees, and other practices. And the payday lenders challenged the rule in court, losing repeatedly. Eventually, however, one federal appeals court, the Fifth Circuit, ruled that the agency’s funding is unconstitutional because the agency gets its money from the Federal Reserve, which in turn, is funded by bank fees.

The Consumer Financial Protection Bureau was created in 2010 to protect consumers from deceptive and predatory practices by financial institutions.

The existence of the Consumer Financial Protection Bureau, and possibly many other federal agencies, could be at risk when the Supreme Court hears arguments on Tuesday.

The 2008 financial crash has made it easier for deceptive practices in the financial services industry to take place, which is why if you have a mortgage or a loan, you may have more protection from them. Now, however, those protections could be in doubt.

Since then, the Bureau has established consumer protections for financial transactions ranging from mortgages to credit cards. Fees that are charged on small loans of less than a hundred dollars can be high, and have been fought by payday lenders for years.

The constitution’s framers created similar funding structures, so the solicitor general defended the funding mechanism of the CFPB.

Congress hasn’t decided how much this agency should be spending, Francisco said. The authority to pick his own appropriation subject has been delegated to the director of the CFPB.

Francisco’s argument was questioned by the judge. “Perpetual” is a word I am having trouble with because it implies that a future Congress could change it, if they wanted to. There is nothing permanent about this.

Francisco’s argument had no limiting principle and so several of the justices, both conservative and liberal, flatly told him it didn’t make sense.

Justice Amy Coney Barrett said that it’s not intelligible. “I think we’re all struggling to figure out … What standard would you use? How do you determine how much is too much if you’re certain that there has to be something greater than $600 million?

The justice noted that $600 million is basically a rounding error in the federal budget. And Justice Sonia Sotomayor added, “I’m at a total loss,” noting that 60% of the federal budget is funded through “standing appropriations,” not line-item appropriations.

Moments later, Justice Ketanji Brown Jackson raised a different concern, worrying about the “separation of powers” and the “judiciary suddenly becoming a super legislator.”

The founding was a place where standing appropriations were common. “So you’re just flying in the face of 250 years of history,” she said.

Clarence Thomas was frustrated as well. Trying to get a succinct answer, he asked Francisco to “complete this sentence: funding of the CFPB violates the appropriations clause because …?”