The US Supreme Court will have a big say in whether the Consumer Financial Protection Bureau succeeds next year in reshaping how banks handle customer data and charge fees.
Consumers would have an easier time sharing their financial data and switching banks, and would get caps on credit card fees under final rules the CFPB plans to issue in the coming year. The agency has also started writing key rules set to advance in 2024 that would restrict fees for overdrafts and insufficient funds, and redefine the credit reporting industry.
But those ambitious efforts fall in the shadow of existential threats to the CFPB and its rulemaking authority. The Supreme Court is expected to rule in the coming months in one case challenging the CFPB’s independent funding mechanism through the Federal Reserve, and in a second that could make it easier to challenge any federal agency’s rules in court.
With those developments in the offing, 2024 is shaping up to be one of the most consequential years yet in the CFPB’s 12-plus years of existence. For now, the agency is moving full steam ahead.
“I’ve seen no evidence of a slowdown in response to the risk that the Supreme Court rules against the bureau,” said Eric Mogilnicki, a partner with Covington & Burling LLP who has worked with clients facing CFPB regulatory and enforcement actions.
Awaiting SCOTUS
The Supreme Court heard oral arguments in October in CFPB v. Community Financial Services Association of America, a case out of the US Court of Appeals for the Fifth Circuit that found the CFPB’s independent funding violates the Constitution’s appropriations clause. The CFPB currently requests money directly from the Federal Reserve, rather than going through the annual congressional appropriations process.
Enough conservative justices expressed skepticism about the Fifth Circuit’s ruling that observers believe the CFPB’s funding will escape being deemed unconstitutional.
“The speculation is that they’re not going to do something wild, like blow up the CFPB. I’m not even sure, writ large, the industry would want that outcome,” said Jonice Gray, a Paul Hastings LLP partner who works with financial services institutions.
Read More: CFPB’s Survival Odds Improve After Supreme Court Hears Challenge
A ruling in favor of the CFPB would revive its long-gestating rule to restrict the way payday lenders access customer bank accounts. The CFPB appropriately followed administrative procedures when issuing the rule, the Fifth Circuit said in its October 2022 decision on the payday lenders’ challenge; the Supreme Court declined to take up that question.
Along with the payday lending rule, a host of enforcement actions snaking through federal courts would return to life should the CFPB win at the Supreme Court. That includes a rule mandating the collection of demographic data for small business borrowers that has been on hold pending the outcome in the CFPB funding case. However, lenders will likely launch a procedural challenge to the rule should the existing stay end.
Oral arguments aren’t always a good predictor of Supreme Court outcomes, so justices could still rule against the CFPB.
The court could, for instance, find a way to let all existing CFPB rules and enforcement actions stand while striking down the agency’s funding mechanism. Or it could simply declare all the agency’s past work to be invalid. In either case, Congress would be tasked with funding the CFPB in future years.
Agency Deference
The Supreme Court’s conservatives could use a separate case to clip the wings of all federal regulators, even if it allows the CFPB’s funding to survive.
The high court in January is set to hear oral arguments in a pair of cases, Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce, that could allow the court’s conservative majority to whittle down or even eliminate a doctrine known as Chevron deference. That doctrine, established in 1984, says judges should defer to expert regulatory agencies’ interpretations of ambiguous statutes.
Read More: Supreme Court to Hear Big Challenge to Agency Powers in January
A ruling overturning Chevron deference would open up challenges to many existing regulations, including those issued by the CFPB, said Chris Willis, the co-leader of Troutman Pepper Hamilton Sanders LLP’s consumer financial services regulatory group.
“It calls into question the validity of a lot of regulatory interpretations and regulations themselves that have been in place for decades,” he said.
Tech Expansion
The CFPB was busy in 2023, even with a slew of legal challenges looming large, and 2024 should see the fruits of that work.
The agency says it intends to wrap up rules required under Section 1033 of the Dodd-Frank Act that would require banks to allow customers to easily transfer their financial data to third-party companies, including fintech startups.
The so-called open banking rule has the potential to dramatically reshape consumer financial services, CFPB Director Rohit Chopra says.
Read More: Banks Must Share Data With Rivals Under CFPB Proposed Rules
The rule, scheduled to be completed in the fall, will apply only to deposit and credit card accounts at first. But the CFPB says it wants to expand open banking to mortgages, student loans, and other financial products.
“As that approach is expanded over time, first to smaller and smaller institutions and then eventually to other rulemakings and other types of products, I do think that the creation of this open banking system is going to change the competitive dynamic,” said David Stein, of counsel at Covington & Burling and a former CFPB official.
Muted Criticism
The CFPB so far has seen only muted criticism of its approach to open banking, even from Republicans in the House of Representatives who are typically critical of the regulator. Chopra has also sounded open to making some changes pushed by GOP lawmakers.
Banks and fintechs will likely find different parts of the rule to endorse, giving it potential staying power, said Kari Hall, a Paul Hastings financial services partner.
“It goes beyond the banks. It’s much more far-reaching and I think, frankly, you’re going to have some supporters for parts of it in different areas,” she said.
The CFPB is also set to finalize a rule subjecting the largest digital payments providers and digital wallet operators to direct supervision by agency examiners. CFPB officials have declined to name the companies that would be subject to the rule, although the November proposal is expected to cover 17 companies.
Chopra has said that many of the companies included in the rule would be household names, and analysts expect
Read More: Meta, Apple at Risk of Greater Regulation of Digital Wallets
Those companies are already subject to CFPB enforcement actions. But putting them under regular CFPB examinations will have an even bigger impact on how they operate, for fear of having an examiner discover illegal or even borderline conduct, said Jenny Lee, a former CFPB enforcement attorney.
“It will change their behavior regardless of whether anyone does an exam,” said Lee, the founder of tech-focused firm Tessellate Law.
Late-Fee Fight
A contested bid to cap credit card late fees at $8 also awaits final CFPB action. Existing rules allow credit card companies to charge a $30 fee for a missed payment, and $41 if a customer misses another payment in the next six months.
The move is part of the Biden administration’s broader attack on so-called junk fees, and a final rule is expected in January or February. Some analysts say it could be tied to President Joe Biden’s State of the Union address.
Banking trade groups have already raised questions about the process the CFPB used to write the rule, including its decision not to engage a small business review panel. In addition, cutting late fees will force credit card companies to roll back or eliminate popular rewards programs, the industry groups say.
Most observers expect a lawsuit soon after the rule is finished.
“Ultimately, our sense is that the courts will have the final say on this rule given ongoing challenges to the Bureau’s funding structure and litigation that will follow finalization of this rule,” wrote Isaac Boltansky, the director of policy research at brokerage BTIG LLC in Washington.
Overdraft, Credit Reporting Plans
The CFPB has started work on significant new regulations, even as it wraps up other key rules.
Bank fees for overdraft and insufficient funds would be limited, for instance, under new proposals the regulator is eyeing, setting up a clash with lenders over billions of dollars in annual revenue.
Read More: US Takes Aim at Banks’ Billions of Dollars in Overdraft Fees
The CFPB is also working on an overhaul of implementing rules for the 1970 Fair Credit Reporting Act, according to an outline submitted in September to a small business review panel. Among the highlights are potential limits on the use of medical debt and new restrictions on data brokers, such as classifying them as credit reporting companies.
Some supporters of the credit reporting industry have pounced on the agency’s outline, including a proposal to limit how data brokers sell “credit header data” to lenders and others under the federal credit reporting law. That data, such as a person’s name and address, is important for verifying identities as well as for immigration and law enforcement, critics say.
Read More: CFPB Eyes Broad Expansion of Federal Credit Reporting Standards
A full credit-reporting proposal will come several months after the small business review panel finishes reviewing the CFPB’s outline and provides feedback.
“The FCRA one is the biggest one that could hit the industry,” Troutman Pepper’s Willis said.
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