WASHINGTON–Credit unions may have strongly-held differences with the Consumer Financial Protection Bureau (CFPB), but any Supreme Court decision that would dismantle it would cause “chaos,” according to several people.
As CUToday.info reported, the Supreme Court has announced it will hear an appeal of a lawsuit challenging the funding mechanism of the CFPB and will review a decision of the 5th U.S. Circuit Court of Appeals in October 2022 that found the CFPB’s funding mechanism to be unconstitutional. That three-judge panel had ruled that placing CFPB funding outside of the process violates the U.S. Constitution’s structural separation of powers.
But anyone wishing the decision might mean the demise of the Bureau should be careful what they wish for, according to Ann Petros, director of regulatory affairs with NAFCU.
No More Safe Harbors
“As much as we may disagree with a lot of the CFPB’s actions, and we prefer the CFPB be run by a bipartisan commission, we do recognize a decision that would upend the CFPB as it currently stands could put the consumer financial service industry into a state of chaos, as a lot of the rulemaking from the CFPB would be called into question,” said Petros. “The safe harbors especially under the mortgage servicing and mortgage origination rules, could be unclear, to say the least. We want to avoid that sort of situation, but we have to wait and see there.”
Asked what she believes would be the preferable outcome of the Supreme Court ruling, Petros said the funding issue is one NAFCU believes can be settled in a pretty “straightforward manner.”
“What we don’t want is the CFPB dismantled completed, as much as we disagree,” she explained. “Our members have invested a lot of time and money and compliance resources to abide by CFPB regulations. To undo all of that would definitely create chaos, and we don’t think that is in the best interests of the industry.”
One Hypothetical Scenario
NAFCU Senior Vice President of Government Affairs Greg Mesack added a hypothetical around other potential scenarios related to a Supreme Court ruling.
“The Fifth Circuit basically said the payday rule was invalid because the agency is funded unconstitutionally,” he said. “I’m not saying this will happen, but if you apply that rule, over the past few years the CFPB has completely written the mortgage financing rules, and there would be a question around whether people would ever be able to get mortgages or car loans. That’s not what we want to hear. It would have a devastating impact. What we really want is a Supreme Court decision that, whatever they decide, it will allow us to have functional financial markets while the Congress goes in and sorts it out.”
What About NCUA?
Petros noted the are other issues related to the potential Supreme Court ruling that could hit close to home for credit unions.
“There is a lot of talk now about how the FDIC’s structure is not that different from the CFPB’s,” she said. “No one mentioning that NCUA is similarly structured as an independent agency outside of the appropriations process. We are cognizant of that and want to see a narrow decision that resolves the issues related to the CFPB but doesn’t throw into uncertainty the functioning of other regulators.”
The court will hear the case in the autumn of this year with a ruling expected in the spring
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