Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra and allies in the U.S. Senate addressed the impending decision by the U.S. Supreme Court on the CFPB’s constitutionality during a Senate Banking Committee hearing on Tuesday.
Sen. Sherrod Brown (D-Ohio), the committee chairman, asked Chopra during the hearing what it would mean for the CFPB to lose its independent funding structure. Chopra responded by describing a scenario in which mortgage borrowers lose a critical advocate while lenders are left in an uncertain operating environment.
“Well certainly, in as much as the Fifth Circuit’s ruling is sustained, it would create major uncertainty in our mortgage markets,” Chopra said. “It would be difficult [for] lenders to know what the rules of the road are, and borrowers may not have the clear responsibilities and rights [lenders need] to safeguard them. We learned the hard lesson in the financial crisis when it came to predatory mortgage lending, and the reforms we’ve put into place have built a lot of resilience in the system.”
In his opening statement, Brown also described recent actions challenging the CFPB’s constitutionality as legal maneuvers seeking to invalidate the CFPB.
“Last year’s Fifth Circuit ruling is far, far outside the mainstream – they’re saying the CFPB’s funding authority violates the Constitution’s Appropriations Clause and the separation of powers,” Brown said. “This is, frankly, insane. By establishing reliable and steady funding, we ensured that CFPB would be able to fully protect consumers. For more than two centuries, Congress has used—and the courts have recognized—a variety of different mechanisms to fund agencies and programs.”
Brown, who voted for the Dodd–Frank Wall Street Reform and Consumer Protection Act that established the CFPB, said the funding structure was chosen by lawmakers to insulate the CFPB from “political interference” while comparing the structure to what governs agencies like the Federal Reserve.
“If the CFPB’s independent funding structure is unconstitutional, there’s going to be far-reaching collateral damage,” Brown said. “The Fed would be in jeopardy, so would the FDIC. These are entities vital to our economy – and to how corporations operate.”
The following day, minority member Sen. John Kennedy (R-La.) introduced a Congressional Review Act (CRA) resolution of disapproval to the CFPB rule to implement Dodd-Frank Section 1071, which amends the Equal Credit Opportunity Act (ECOA).
Chopra’s comments echo recent arguments made by housing trade groups that include the Mortgage Bankers Association (MBA), National Association of Home Builders (NAHB) and the National Association of Realtors (NAR). The groups filed an amicus brief with the Supreme Court last month to illustrate what they say could happen to the mortgage market should the Fifth Circuit ruling be upheld.
“[The Court] must be careful to issue a circumscribed ruling that does not call into question other crucial regulations issued by the CFPB over the past years while receiving funding [under the current mechanism],” the brief states. “In Seila Law LLC v. CFPB, this Court recognized that undoing the CFPB’s actions across the board ‘would trigger a major regulatory disruption’ and do ‘appreciable damage to Congress’s work in the consumer-finance arena.'”
