CFPB Goes on Offense, Faces Challenges After High Court Win (1)

The Consumer Financial Protection Bureau appears on the verge of historic levels of public and private enforcement activity after surviving its latest existential threat at the US Supreme Court. Its director, Rohit Chopra, said enforcement is now “firing on all cylinders.”

The Supreme Court’s decision will have immediate and significant impact on the consumer finance industry, especially as the CFPB already announced plans to expand its enforcement team by 75 staff members. The long-term effects of the Supreme Court’s ruling, however, aren’t yet clear.

In Consumer Financial Protection Bureau v. Community Financial Services Association of America, the Supreme Court held 7-2 that the CFPB’s funding structure complies with the Appropriations Clause of the US Constitution, reversing the US Court of Appeals for the Fifth Circuit’s contrary decision.

Justice Clarence Thomas, writing for the majority, concluded that the Appropriations Clause requires only that Congress identify in a funding law the specific source of funds, and a purpose for which the funds are to be used. The Supreme Court held that the Dodd-Frank Act satisfied both requirements as to the CFPB’s funding structure.

The CFPB’s victory lifts a heavy cloud that has dampened the agency’s activities ever since the Fifth Circuit held the CFPB’s funding structure to be unconstitutional. Had the Supreme Court agreed with the Fifth Circuit, almost every aspect of the CFPB’s operations would have been cast into doubt. While the Supreme Court case was pending, courts following the Fifth Circuit’s decision temporarily blocked two CFPB rules on account of the perceived constitutional violation—one on small business lending data collection, the other on credit-card late fees.

The CFPB moved cautiously in the wake of the Fifth Circuit’s ruling. The agency slow-rolled its public enforcement activity, but it continued to initiate and pursue confidential investigations and also engaged in substantial supervisory activity.

Reinvigorated by the Supreme Court’s decision, the CFPB has already shown signs that it intends to move forward with all activities—rulemaking, investigation, and enforcement—at full speed. And if past is prologue, the looming election may kick those activities into overdrive.

Just one day after the Supreme Court’s decision, Chopra confirmed that the agency would forge ahead in light of the decision, especially with respect to enforcement actions that had been “put on pause” because of the uncertainty about the agency’s constitutionality.

And the CFPB has wasted no time. On the day of Chopra’s remarks, the agency initiated a brand-new enforcement action, filed notices of supplemental authority in pending cases where a stay had been requested because of the funding challenge, and worked to unfreeze the two rules that had been temporarily blocked because of the Fifth Circuit’s now-vacated ruling.

On the injunction staying the small business data collection rule, the CFPB stated that the injunction has now expired because of the Supreme Court’s decision, and it announced plans to issue new compliance deadlines. As for credit-card late fee rule, the CFPB indicated it would challenge “the continuing validity of the preliminary injunction” currently in place.

The CFPB has signaled it will make up for lost time by redoubling its enforcement. According to public disclosures, these efforts will cover a wide range of consumer financial products and services, including credit reporting, small dollar loans, finance-related fees, account opening practices, credit cards, and person-to-person payment systems. And any enforcement activity placed on hold pending the Supreme Court’s decision—at least nine public enforcement actions and five civil investigative demands—will now race forward.

The CFPB is also likely to aggressively pursue those entities that rebuffed engagement with the CFPB’s enforcement processes in the hope that the Supreme Court would rule against the CFPB.

Once-paused investigations will move forward, and we expect that most pending investigations will progress towards settlements, consent orders, and enforcement actions. The existing backlog and the CFPB’s expansive enforcement ambitions mean the agency—and entities defending against the agency—will be busier now than at any point in recent memory.

Future Challenges

The CFPB has spent most of its existence weathering challenges about its ability to exist. This case may be the last such challenge for now. The CFPB may nevertheless find itself hamstrung by other types of suits, such as challenges to its use of administrative law judges.

The Supreme Court’s decision could mark a turning point. Instead of battling against existential crises, the CFPB may be forced to defend with greater frequency how it conducts itself as an agency, and the limits of the CFPB’s power. The CFPB is charged with enforcing many consumer financial laws—some broadly worded—and it is also ambitious in how broadly it intends to regulate. But as the saying goes, “Congress does not hide elephants in mouseholes,” and the CFPB may find that its elephants don’t fit in Dodd-Frank’s mouseholes.

That the Constitution permits the CFPB’s existence doesn’t mean the CFPB is empowered to do everything that it wants to do. Like other federal agencies, the agency has already confronted arguments that it overstepped its bounds, pushed the law too far, and acted unfairly toward the entities that it regulates. The CFPB’s industry targets have made clear they will continue to fight back against the agency when necessary, on narrower issues than the seemingly settled dispute over the constitutionality of the CFPB’s existence.

(Corrects X paragraph to clarify number of members added to CFPB’s enforcement team and updates photo caption)

The case is CFPB v. Community Financial Services Association of America, Ltd., U.S., No. 22-448, Decided 5/16/24.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Andrew Kim, Matthew Sheldon, and Sabrina Rose-Smith are partners in Goodwin’s consumer financial services litigation and enforcement practice. Kim is also a partner in Goodwin’s appellate and Supreme Court litigation practice.

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