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The Consumer Financial Protection Bureau’s victory at the Supreme Court last month answers for now the question of its constitutionality and may quiet the agency’s critics. But make no mistake: the CFPB remains a potent agent of federal power operating with an aggressive agenda.
Indeed, some payments experts fear the decision, which the high court reached by a surprising 7-2 vote, will give rise to more heartburn for the industry. It will certainly encourage the agency in its charge to rein in “lawless” actors in financial services—whether there’s real harm or not, or whether indeed the targeted companies are abiding by the law. No matter. With its funding now secure, the agency may plow ahead with little fear of Congressional oversight.
Recent history indicates the payments industry has cause to rue this high court decision. The CFPB has found cause to investigate and seek rules concerning such businesses as digital wallets, open banking, credit card late payments, and buy now, pay later lending. Its targets over the years have included major payments companies like ACI Worldwide Inc. and Block Inc., operator of the popular Cash App wallet.
It didn’t have to turn out this way. A case involving the CFPB and payday lending came before the U.S. Court of Appeals for the Fifth Circuit, which in an October 2022 decision ruled the CFPB’s funding source—which is the Federal Reserve rather than, as with many federal agencies, Congress—renders the agency unconstitutional. That’s the case that wound up at the Supreme Court, seven of whose Justices saw nothing notable about the agency’s drawing its funding from the Fed. The concern now, say some experts we’ve talked to, is that the CFPB can proceed with little or no Congressional oversight.
The decision aside, payments experts were also surprised by the lopsided vote on the Court. Only two of the court’s conservative Justices opposed the decision, while the majority opinion was written by strict constructionist Clarence Thomas. “The decision wasn’t a big surprise, but the margin was,” Eric Grover, principal at the consultancy Intrepid Ventures, told us.
So, more mischief from the regulatory state? Maybe. Ben Jackson, our Payments 3.0 columnist (page 14), says there’s still a downside for the CFPB, despite the high court’s misguided verdict. “Looking at the big picture, the Supreme Court’s decision is a win for the Bureau and may eliminate some future court challenges to rules,” he concedes. “But it may raise the stakes of the next election for the CFPB, because a change in the control of Congress could lead to a legislative effort to restructure the CFPB in the next Congress.”
—John Stewart, Editor john@digitaltransactions.net
