Payday lenders want Supreme Court to gut the CFPB. They paid $200 million in fines to regulators, records show.

By Chris Matthews

Critics warn of 'destabilizing' consequences for financial system if lawsuit is successful

The Supreme Court will hear oral arguments next Tuesday in a case that could reshape the U.S. regulatory state, after a federal appeals court found the funding structure of the Consumer Financial Protection Bureau to be unconstitutional.

If the Supreme Court agrees with the lower court ruling in the case CFPB v. Community Financial Services Association of America, it's possible that the entire agency may be eliminated by judicial fiat, an outcome that may be very profitable for the payday lending industry.

That's according to a new report from the left-leaning corporate watchdog Accountable.US, shared exclusively with MarketWatch, which shows that the CFSA, the group suing the CFPB, comprises more than a dozen payday lending companies who have paid more than $204 million in fines and restitution to federal and state regulators.

"Predatory lenders notorious for charging 400% interest rates and tricking Americans into endless cycles of debt want to tie up the nation's top consumer watchdog with bureaucratic red tape," said Liz Zelnick, director of Accountable's economic security and corporate power program.

"This lawsuit is the crown jewel in a well-coordinated, long-running scheme to put the CFPB out of commission by industries that hold contempt for the very idea of consumer protection," she added.

Accountable.US. is attempting to raise awareness of what the industry stands to gain from a hamstrung CFPB though an effort, launched Tuesday, called Defend American Consumers.

The report highlights the past regulatory stumbles of payday lenders like Enova International (ENVA), whose chief strategy officer, Kirk Chartier, sits on the board of CFSA. In 2019, Enova settled with the CFPB over allegations that it debited consumers' bank accounts without authorization, agreeing to pay a $3.2 million civil penalty.

Enova chief compliance officer Sean Rahilly said at the time that the company takes system errors "seriously" and that the company "self-reported these issues to the CFPB in 2014 so that we could work constructively with the Bureau to ensure continuous improvement."

The CFSA didn't respond to multiple requests for comment.

The lawsuit is part of a broader effort by forces aligned with the Republican Party to rein in the power of independent regulators like the CFPB, the Securities and Exchange Commission and the Environmental Protection Agency, which conservatives say have abused the rulemaking process to push progressive policy goals and to avoid democratic restraints on their power.

In July, more than 130 Republican members of Congress signed an amicus brief supporting the legal case against the CFPB, arguing that the Dodd-Frank financial reform law that created the agency "included a panoply of provisions designed to insulate the agency as much as possible from Congress' ordinary appropriations processes" which together "amount to a clear transfer" of Congress' constitutional powers to the CFPB itself.

During the 2023-2024 term, the Supreme Court will hear several cases important to the deregulatory effort, including CFPB v. CFSA. Another important case is SEC v. Jarkesy, which could result in a significant curtailing of agencies like the SEC to promulgate controversial rules, while Loper Bright Enterprises v. Raimondo is a case that could result in the revocation of judicial deference toward regulators in cases where statutory language is vague.

These cases follow on others from recent terms, like West Virginia v. EPA, which took aim at the ability of regulatory agencies to write rules on issues of major economic and political significance without clear statutory authorization, and a 2020 case involving the CFPB which said a provision of the law that said president's can't fire a CFPB director without cause was unconstitutional.

This term's case involving the CFPB has the chance to be particularly disruptive because the agency's opponents are arguing that the agency's funding structure is unconstitutional, on the argument that its funds are paid out by the Federal Reserve and not subject to annual budget appropriations by Congress.

At a recent press call on the CFPB case held by the pro-regulation group Americans for Financial Reform, University of Chicago law professor Aziz Huq noted that other agencies, including the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, are also funded without direct appropriations by Congress.

A ruling against the CFPB on these grounds could call into question the constitutionality of the entire federal banking regulatory system, he said.

"The fifth circuit's ruling, were it to be affirmed by the Supreme Court, would create an immense amount of uncertainty about the basic architecture of our our financial system," he said, adding that it would also "create potentially worse a vacuum at the core of that financial system that would have debilitating consequences for the national economy and for the U.S.' global position."

-Chris Matthews

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-26-23 0500ET

Copyright (c) 2023 Dow Jones & Company, Inc.