Everyday consumers, often at the mercy of unscrupulous lenders, are in danger of losing a powerful ally.
The Consumer Financial Protection Bureau (CFPB), has for more than a decade, acted as a consumer watchdog against predatory lending practices.
But the conservative federal appeals court for the fifth circuit in New Orleans has declared the agency unconstitutional, based largely on a technicality.
It also vacated a payday lending regulation created by the agency designed to curb exploitive lending practices.
The case is now pending before the U.S. Supreme Court and a coalition of 24 state attorneys general has filed a brief, urging the high court to reverse the decision.
“The CFPB has proven that it is able to stand up for consumers and help states, including New York, to ensure that our residents are protected,” said Attorney General Letitia James, who is leading the effort.
“That is why opponents are attacking the agency, and that is why I am proud to push back on these brazenly anti-consumer protection efforts,” she added.
Specifically, the Fifth Circuit ruled the agency’s operations violated the Constitution because it does not receive an annual appropriation from Congress. Instead, the agency is funded by the Federal Reserve.
As part of the ruling, the court vacated the CFPB’s payday lending rule, targeting short-term loans, including payday loans, vehicle title loans and certain longer-term balloon-payment and high-cost installment loans.
The CFPB’s rule prevents lenders from attempting to collect payments from people’s bank accounts in ways that may rack up excessive fees or deviate from what they expect.
The bureau was created in the wake of the devastating 2008 financial crisis, triggered by the collapse of the banking industry.
Congress created the bureau to act as a consumer watchdog to enforce nationwide consumer financial standards. in areas ranging from mortgage lending requirements to debt-collection practices.
Additionally, many CFPB regulations target financial sectors where individual states may face challenges in regulating fraudulent and abusive practices, according to the New York AG’s office.
James and the coalition argues that the appellate court decision could drastically restrict consumer protection efforts in their states, and would harm millions of Americans.
If the Fifth Circuit ruling is upheld, “numerous CFPB rules and other regulatory actions would be invalidated, destabilizing the consumer financial sector.
In January, the New York AG’s office and the CFPB sued Credit Acceptance Corporation (CAC), one of the nation’s largest subprime auto lenders.
The suit charges CAC deceived thousands of low-income New Yorkers into taking out high-interest car loans.
Last May, James and the CFPB shut down a predatory debt collection operation that used deceptive and abusive tactics to illegally collect millions of dollars from hundreds of thousands of consumers.
In April, James and the CFPB filed a lawsuit against MoneyGram International, Inc. and MoneyGram Payment Systems, Inc. (MoneyGram) — for repeatedly violating consumer protection laws.
Joining Attorney General James in filing today’s amicus brief are the attorneys general of Arizona, California, Colorado, Connecticut, Delaware, Hawaiʻi, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, Wisconsin, and the District of Columbia.
This matter is being handled by Senior Assistant Solicitor General Dennis Fan, Deputy Solicitor General Ester Murdukhayeva, and Solicitor General Barbara D. Underwood — all of the Division of Appeals and Opinions.