On May 16, 2024, the U.S. Supreme Court, in a 7-2 decision, ruled that the CFPB’s funding mechanism does not violate the Appropriations Clause of the U.S. Constitution. That ruling is discussed here.

Shortly after the ruling, the CFPB issued a statement and remarked, “The Supreme Court has rejected [the] radical theory that would have devastated the American financial markets. The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay.” The CFPB goes on to state, “This ruling upholds the fact that the CFPB’s funding structure is not novel or unusual, but in fact an essential part of the nation’s financial regulatory system, providing stability and continuity for the agencies and the system as a whole.”

Last week, the CFPB held a virtual press conference to address industry questions regarding the status of pending matters. The CFPB noted that multiple rules are still under challenge in different courts, including the payday lending rule, credit card late fee rule, and the 1071 small business lending rule. There are also 14 enforcement matters that have been stayed pending the Supreme Court’s CFSA decision. The CFPB stated that it will file for motions to lift stays for any matter that was paused in anticipation of the CFSA decision. However, the CFPB notes that in each of the stayed matters, opposing parties have raised arguments aside from the constitutional argument, and they will need to resume litigation efforts to fight these matters on the merits. Additional rulings in the rule challenge cases, whether on further preliminary injunction requests, on the merits or otherwise, could further impact the compliance dates or ultimate requirements for challenged rules.

The CFPB also noted, in its press conference, that it anticipated a favorable outcome from the Supreme Court and that it is “firing on all cylinders,” to get enforcement staff hired, trained, and in the field. The CFPB remarked that it is expanding the enforcement department and is prepared to continue to work on behalf of consumers.

Additionally, the CFPB has issued informal guidance, and will issue an interim final rule, regarding the extension of the 1071 small business lending rule compliance dates. Based on the 290-day period that elapsed between the initial preliminary injunction issued in the Rio Bank lawsuit in Texas to the May 16, 2024 ruling of the Supreme Court, the CFPB extended the compliance dates from the original dates. For Tier 1 institutions, the compliance date is extended from October 1, 2024 to July 18, 2025, with the initial filing being required by June 1, 2026. For Tier 2 institutions, the compliance date is extended from April 1, 2025 to January 16, 2026, with the initial filing required by June 1, 2027. For Tier 3 institutions, the compliance date is extended from January 1, 2026 to October 18, 2026, with the initial filing required by June 1, 2027.

Addressing the ruling, Mortgage Bankers Association President and CEO Bob Broeksmit, CMB, stated:

“MBA is relieved that the Supreme Court avoided a ruling that would have disrupted the housing and mortgage markets and harmed the economy and consumers. While we frequently disagree with the Bureau on how they interpret or enforce particular rules, a decision that would have invalidated the Bureaus’ previous rules could have had severe consequences for single-family and multifamily mortgage markets.”

We will continue to monitor and report updates on the lawsuits that stem from CFPB rule challenges, and any further guidance from the CFPB.

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