The CFPB is very much needed

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In May, the Supreme Court upheld the constitutionality of the funding scheme for Consumer Financial Protection Bureau, the second time the high court has considered a constitutional challenge to the bureau.

So you might think the bureau’s survival is assured. But in fact, the CFPB faces two more challenges. The first is likely to be decided in Congress, and the second in the courts.

The challenge that could play out in Congress stems from opposition to the bureau. For example, the Heritage Foundation’s Project 2025 calls for abolishing the CFPB.

Why should we care if Congress eliminates the bureau? After all, the country survived without it until 2011.

The answer starts with the Great Recession, which was caused in part by consumer protection failures. Before Congress created the bureau, consumer protection was divided up among a variety of federal agencies that had other missions they saw as more important. The result was that consumers weren’t adequately protected.

For example, in 1994, Congress gave the Fed the power to ban the kinds of mortgages that led to the Great Recession. But the Fed didn’t use that power, perhaps because it was focused on its principal task: monetary policy.

Back then, mortgage originators were willing to provide mortgages to consumers that borrowers couldn’t repay because the originators sold the mortgages to others who would bear the losses. Many consumers couldn’t tell that they wouldn’t be able to make their payments because of the complexity of the mortgages, combined with inadequate disclosures.

The result was defaults, millions of foreclosures, and the worst recession since the Great Depression. Congress’ response included creating the CFPB, which issued rules to prevent such lending from recurring. Discarding the bureau risks another Great Recession.

But the bureau does much more than prevent improvident mortgage lending. It has filed hundreds of enforcement actions against misbehaving companies, which resulted in returning more than $20 billion to consumers.

It has brought cases when lenders committed fraud; auto lenders wrongfully repossessed cars; debt collectors tried to collect money that wasn’t owed; banks discriminated against protected groups; lenders falsely reported that customers were delinquent on their loans; lenders charged improper fees, and many more.

Simply put, the bureau is living up to its name and protecting consumers.

That brings us to the possible court challenge. Congress provided that the bureau’s funding is to come from the Federal Reserve’s “earnings.” But the Fed has been losing money for nearly two years and the end is not in sight. So, the bureau’s critics argue, the Fed doesn’t have any “earnings” these days and consequently can’t provide money to the CFPB.

The first problem with that argument is that it assumes earnings mean only what’s left over after expenses. But earnings can also mean gross receipts. Thus, when people speak of their earnings from a job, they don’t speak of how much they have left over after deducting for transportation and other costs; rather they mean their salary.

This argument finds support in the Federal Reserve Act’s reference to “net earnings.” Obviously, if earnings means only what’s left over, the phrase “net earnings” would be redundant.

Second, the argument assumes that Congress meant only to fund the Bureau out of the current year’s earnings. But not only does the statute not say that, the very next subsection says that the CFPB’s spending is capped at a percentage of the Fed’s expenses in the current fiscal year.

In other words, Congress was thinking about time limits and included them in one subsection but not in the other. The obvious conclusion is that Congress did not want the earnings used to fund the bureau to have to come from the current year.

If courts were to buy the critics’ arguments, they would have to decide that Congress wanted the CFPB to operate only when the Fed made a profit. But why would Congress want consumers to be protected only when another agency made a profit?

It’s true that if the CFPB goes away, Marylanders will still be protected by state agencies. But those agencies lack the ability to prevent another Great Recession. It’s asking a lot of Maryland agencies to fight all the battles the CFPB has fought against companies, many of which operate nationally and have significant resources.

Maryland can feel proud of its consumer protection agencies, but we think it needs the CFPB as well. We hope the bureau surmounts these latest challenges.

Editorial Advisory Board members Arthur F. Fergenson and Debra G. Schubert did not participate in this opinion.

EDITORIAL ADVISORY BOARD MEMBERS

James B. Astrachan, Chair

James K. Archibald

Gary E. Bair

Eric Easton

Arthur F. Fergenson

Nancy Forster

Susan Francis

Julie C. Janofsky

Ericka N. King

George Nilson

Catherine Curran O’Malley

Angela W. Russell

Debra G. Schubert

Jeff Sovern

H. Mark Stichel

The Daily Record Editorial Advisory Board is composed of members of the legal profession who serve voluntarily and are independent of The Daily Record. Through their ongoing exchange of views, members of the board attempt to develop consensus on issues of importance to the bench, bar and public. When their minds meet, unsigned opinions will result. When they differ, or if a conflict exists, majority views and the names of members who do not participate will appear. Members of the community are invited to contribute letters to the editor and/or columns about opinions expressed by the Editorial Advisory Board.