This story has been updated.
There’s a case heading before the U.S. Supreme Court that could have a major impact on consumers nationwide, and it’s not student loan related.
It’s a case about the Consumer Financial Protection Bureau: The federal regulator created in the aftermath of the 2008 global financial crisis and recession.
Its priority task is all in the name: Protecting consumers.
But an Appeals Court recently ruled the CFPB’s funding structure is unconstitutional, and now the Biden Administration has asked the Supreme Court to weigh in.
Consumer advocates say the Appeals Court ruling has already had a ripple effect, with some companies not following the CFPB’s rules.
Since it was created, the CFPB says it has recovered more than $15 billion for consumers through enforcement actions and its consumer complaint database.
Lawmakers say prior to its creation, companies weren’t following the laws designed to protect the public.
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“People were getting cheated, on their mortgages, on their credit cards, on a lot of their consumer borrowing,” Massachusetts Democratic Sen. Elizabeth Warren said back in 2020. Warren is one of the authors of the 2010 Dodd-Frank Act that created the CFPB.
“What this agency has done is it’s been the cop on the beat,” Warren said.
That is until last October, when the U.S. Fifth Circuit Court of Appeals issued a ruling in a case filed against the CFPB by two payday lending advocacy groups challenging laws the CFPB imposed on the payday lending industry.
Those payday lending groups argued that since CFPB is funded by the Federal Reserve, and not Congress, that “improperly shields the agency from congressional oversight and accountability.”
That’s when the Biden Administration asked the country’s high court to hear its appeals of that ruling, and on Feb. 27, the Supreme Court agreed to hear the case during its second term later this year.
Justices will also hear the arguments by the two payday lending groups at the center of that original case.
Consumer advocates say hanging in the balance is every order and other action issued by the CFPB.
“Our financial marketplace, so, you know, your credit reports, your auto loans, your mortgages, all of those things could be affected by a bad ruling,” said Rachel Gittleman with the Consumer Federation of America. “There would be widespread economic uncertainty.”
The Consumer Federation of America points out that there are other federal regulating bodies, like the Federal Deposit Insurance Corp and Office of the Comptroller of the Currency that are funded the same way as the CFPB.
Lawmakers intended the CFPB to be funded this way, in order to insulate it from political pressure.
The U.S. Supreme Court ruling on the CFPB case could impact other agencies funded the same way.
More importantly, though, advocates fear the ruling could undo protections in place for consumers, and they are already seeing evidence of that taking place.
“We've already seen a few repeat offenders,” Gittleman explained. “So, bad actors who have broken the law multiple times, say that they don't need to follow regulations.”
The CFA’s example: MoneyGram, a transfer service that millions of people use, including many immigrant families sending money abroad.
MoneyGram has faced prior federal enforcement actions from the Federal Trade Commission and U.S. Department of Justice, according to agency news releases. So many, in fact, that the CFPB branded MoneyGram in announcing its recent lawsuit as a “repeat offender” for violating “law enforcement orders on multiple occasions with multiple government agencies.”
Just last year, the CFPB alleged that MoneyGram was violating federal laws by “stranding its customers” who were waiting for their money that was stuck in limbo.
Regulators alleged MoneyGram, “failed to accurately disclose how long it would take to make funds available to the recipients abroad,” and that the company hid its prices.
MoneyGram was taken to court by the CFPB and denied the allegations. But after the recent Appeals Court ruling, MoneyGram’s attorneys argued in the ongoing lawsuit that the CFPB agency’s rules are “void and unenforceable.”
The judge in that case was forced to freeze it until after the Supreme Court’s ruling.
A spokesperson for MoneyGram told NBC 5 Responds it, “continues to comply with [CFPB] rules and all other applicable laws and regulations,” but that “the CFPB suffers from structural flaws due to its unconstitutional funding.”
Gittleman fears the company’s customers may be at risk until the Supreme Court issues its ruling.
“[MoneyGram] provides money transfer services to millions of people. So those millions of people are now possibly at risk of violations of Consumer Financial Protection law, because MoneyGram has decided that they will not follow it anymore,” Gittleman said.
Consumer advocates say MoneyGram is just one example of the kinds of cases that are left unresolved, as a result of this Supreme Court ruling.
Arguments in the case are expected later this year, and a final decision may not be released until June 2024.
Editor’s Note: A previous version of this story misstated MoneyGram faced prior enforcement action from the Consumer Financial Protection Bureau. MoneyGram has only faced prior enforcement action from the Federal Trade Commission and U.S. Department of Justice. The story has been updated to reflect this.
