CFPB Revs Up in 2023: Will SCOTUS Cut its Engine?

By Aminah Moore, NAFCU Senior Regulatory Affairs Counsel

Aminah Moore, NAFCU Senior Regulatory Affairs Counsel

Lately, the Consumer Financial Protection Bureau (CFPB) has been active in its rulemaking and supervisory authority. Among other happenings, it issued a proposed rule to limit credit card late fees as part of the bureau’s misguided war on “junk fees,” permanently banned a lender from the mortgage industry, and the U.S. Supreme Court (SCOTUS) agreed to take up the constitutionality of the CFPB’s funding structure.

What we’re currently fighting against:

The CFPB’s proposed rule on credit card late fees would amend Regulation Z to reduce the safe harbor for late fees from $30 for the first violation and $41 for subsequent violations to a flat $8 fee for all violations. Additionally, the proposal eliminates the annual inflation adjustment for the late fee safe harbor amount. Under the proposal, late fees are also not permitted to exceed 25% of the required minimum payment, whereas late fees are currently permitted to be 100% of the required minimum payment. Finally, the CFPB’s proposal explains that only pre-charge off collection costs may be considered when calculating the late fee amount if not using the safe harbor.

The CFPB has continued to bring attention to fees, specifically those it has labeled as “surprise” or “junk” fees, but NAFCU continues to explain that there is no such thing as surprise or junk fees in the highly-regulated financial services industry. This proposal will negatively affect credit unions and their members—most notably by forcing institutions to raise the prices of other products and services, ultimately harming not only those underserved or higher-risk consumers that need access to credit most, but also those who always pay their accounts on time. NAFCU has urged the CFPB to extend the comment period, release more data from its rule analysis, and convene a small business review panel to examine the economic impact of this proposal on smaller financial institutions and ensure continued access to safe, affordable credit options. The CFPB also continues to focus on other “surprise fees” like certain overdraft and non-sufficient funds fees.

What’s notable:

On the supervisory side, the CFPB permanently banned RMK Financial Corporation from the mortgage lending industry. This action follows a 2015 action by the CFPB against RMK Financial in which the CFPB found the firm tricked military families about its relationship with the federal government by sending advertisements that misrepresented that it was affiliated with the Department of Veteran’s Affairs (VA) or Federal Housing Administration (FHA)—leading people to believe that the VA or FHA sent the notices, or that the advertised loans were provided by the VA or FHA. RMK Financial deceived consumers about interest rates and key terms, including by showing the interest rate more conspicuously than the APR. Lastly, the CFPB found that RMK Financial misrepresented that certain benefits were time-limited, misrepresented that military families could obtain VA cash-out refinancing without an appraisal and regardless of income/credit score, and misrepresented the amount of monthly payments or annual savings.

RMK Financial is a repeat offender, which the CFPB has been targeting, as evidenced by its creation of a repeat offender unit and a proposal to create a repeat offender registry. This also highlights the CFPB’s focus on mortgage lenders and protecting servicemembers.

What we’re watching for:

SCOTUS agreed to hear a case that has the potential to dismantle the CFPB and create confusion for financial institutions and other regulators not subject to congressional appropriations. The case dates to 2017, when the payday lending industry’s lobbying group—the Community Financial Services Association of America—brought a suit against the CFPB alleging that its 2017 payday lending rule was issued unlawfully, arguing among other things that the CFPB’s funding structure is unconstitutional. The Fifth Circuit Court of Appeals agreed, vacated the Payday Lending Rule, and ruled that the CFPB’s funding structure is uniquely unconstitutional because it receives funding through the Federal Reserve rather than through congressional appropriations. However, further complicating the issue, the Second Circuit Court of Appeals in March gave a contradictory ruling as it argued the bureau’s funding structure is constitutional as Congress authorized its funding through the Consumer Financial Protection Act. NAFCU supports the continued operation of the CFPB to ensure consistency in the financial market, but has long held that the CFPB should be led by a bipartisan commission and credit unions should be exempt from CFPB jurisdiction and solely regulated by the NCUA. SCOTUS will hear arguments on the case during its October 2023 term.