A ruling against the agency in a case now before the court would “likely throw the economy into recession,” financial scholars argued.
Topline
The Supreme Court heard oral arguments Tuesday in a case concerning the constitutionality of the Consumer Financial Protection Bureau (CFPB)—which groups have warned could have devastating impacts on the economy and consumers, particularly the mortgage market, if the high court rules in challengers’ favor.Key Facts
The CFPB was established in 2010 through the Dodd-Frank Act after the 2008 financial crisis and is funded through the Federal Reserve, and its function as an agency is to protect consumers and regulate financial products and services to prevent any “unlawful, unfair, deceptive, or abusive acts or practices,” according to the law.
In the case before the court, CFPB v. Community Financial Services Association of America, industry groups representing payday lenders are taking aim at the agency, arguing that it’s unconstitutionally funded because the funding comes from the Federal Reserve and is not appropriated annually via Congress.
If the Supreme Court rules CFPB’s funding structure is unconstitutional and issues a broad ruling that defunds the agency and revokes its powers as a result, it could have wide-reaching economic consequences, groups have warned in amicus briefs filed with the court.
Groups representing mortgage bankers, home builders and realtors argued “the housing market could descend into chaos” if lenders and borrowers are left without the guidance CFPB has typically provided, with the uncertainty and a likely flood of litigation leading to “severe instability, liquidity issues, and operational problems in the mortgage market”—and those issues could extend to other sectors of the housing market, which the groups note collectively make up 17% of the U.S.’s gross domestic product.
Financial scholars from Georgetown Law and Boston College wrote defunding CFPB would cause “regulatory chaos [that]
would stifle credit markets, destabilize banks, and likely throw the economy into recession,” as lenders would likely restrict who they issue loans to in the wake of losing protections afforded by the CFPB, which would also hurt secondary credit markets.
