A response to Professor Adam Levitin regarding the Fifth Circuit opinion in Community Financial Services Association of America, LTD v. CFPB | Ballard Spahr LLP

Although I often disagree with Professor Levitin’s opinions and political positions on the evolution of consumer financial services, I have great respect for him because he knows this area very well. Shortly after the Fifth Circuit ruled that the CFPB was unconstitutionally funded and struck down the payday loans rule, Adam posted a blog on credit slips in which he presented a host of reasons why he thinks the case was mishandled. While I’m not going to say in this blog whether I agree with the Fifth Circuit’s reasoning or Adam’s critique (after all, the only thing that matters here is what the Republican-dominated Supreme Court thinks and , perhaps, what Congress should do for except the CFPB if the Supreme Court so affirms), I agree that he articulated a more compelling argument than the CFPB in his briefs in the Fifth Circuit and in his more recent memoirs in additional filings he made in other pending cases after the Fifth Circuit ruling. If this was a pointless argument, Adam would win hands down.

On October 28, Adam published an op-ed in the American Banker titled “Those who seek to bring down the CFPB must be careful what they wish for(article behind the paywall). In his editorial, he makes the in terrorem argument that an assertion of the opinion of the Fifth Circuit will lead to chaos. Although I cannot quote his entire article, allow me to quote some of the same excerpts from the article cited recently by the Consumer Law and Policy Blog (October 29, 2022):

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Take the example of a mortgage lender who must make disclosures when granting a loan. For years, this lender has used the disclosure forms promulgated by the CFPB, knowing that their use protects it from liability. If the agency is unconstitutional, use of these forms ceases to provide legal protection.

Similarly, the CFPB’s Qualified Mortgage Safe Harbor stemming from the Dodd-Frank Repayment Capacity Requirement will disappear if the CFPB is unconstitutional, triggering immediate liability on lender guarantees to investors that mortgages they sold them were qualified mortgages. Every bank that charges overdraft fees will suddenly be breaking the law because overdraft fees are exempt from cost of credit disclosure under CFPB regulations.

While I agree with Adam that much of the consumer financial services industry should be careful not to throw the baby out with the bathwater, there is a way forward that could to save the CFPB and the regulations (other than the Payday Loan Rule) it has enacted in its more than 11 years of existence. One obvious way to accomplish this is for the Supreme Court to uphold the Fifth Circuit, but make its order prospective only. As he has done on other occasions in the past, he would likely suspend his term for a reasonable period of time to allow Congress to correct the funding problem. While I don’t have much faith in Congress, I think there would be strong bipartisan support for keeping the CFPB and most, if not all, of its regulations and enforcement, as long as Dodd-Frank is amended to require funding by Congressional appropriations and governance by a 5-member board of directors instead of a single director. Hopefully, as part of this process, Congress might very well overrule some of the many opinions, circulars, political statements, etc. which are not regulations in their own right. As readers of this blog know, I have been highly critical of Director Chopra’s penchant for issuing unanticipated and controversial “guidelines” out of fiat rather than rule-making under the Administrative Procedures Act.. One of the most egregious examples of this was his modification of the UDAAP examination manual to broaden the definition of ‘unfairness’ to include discrimination (including disparate impact) in a way that goes far beyond the scope of the Equal Credit and Opportunity Opportunity Act federal fair housing law. This led to a lawsuit against the CFPB challenging the action of the American Chamber of Commerce and professional banking associations.

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