The Consumer Financial Protection Bureau (CFPB) was vindicated last week after the U.S. Supreme Court rejected a challenge to Congress’ funding structure. However, the debate over financial regulation and consumer protection will continue, and the financial services industry and policymakers will continue to grapple with the implications of this decision and its implications for the broader regulatory landscape.
Amias Gerety, a partner at venture capital firm QED Investors, said in response to the CFPB’s decision, “The CFPB is clearly constitutional, so we can proceed with the process in what I would call the normal way.” told Karen Webster. “Now we should focus on debating whether their rules are a good or bad idea and find ways to leverage technology to make consumers’ lives better.”
Mr. Gerety previously worked at the U.S. Treasury Department, where he served as a senior adviser to the assistant secretary of financial institutions in the aftermath of the 2008 financial crisis and had a front-row seat in the creation of the CFPB. His view of the decision, while agreeing with Justice Clarence Thomas’ relatively short majority opinion, was that “this is not a complex issue.” The law that created the agency’s funding was enacted following the constitutional appropriations process through the Dodd-Frank Act, which created the financial regulator.
The creation of the CFPB, funded through the Federal Reserve System, went a long way in insulating the CFPB from the “Mother May I” system of annual Congressional spending, in the manner seen with the FDIC, OCC, and Social Security Administration. . He said the funding structure has precedent, as Thomas pointed out in the Supreme Court decision, and was established in the early establishment of the U.S. Customs Service and Post Office.
And in fact, he told Webster, even though the CFPB has inherent authority to investigate and enforce certain rules, there is no certainty that it will not be able to increase Congressional oversight over time. , he said. For now, he said, attention is likely to focus on the agency’s actual rulemaking itself and the impact on the financial services industry. First, he believes it will provide stability and predictability. In response to this decision, industry associations expressed support for the decision, recognizing the importance of a stable regulatory environment in which rules are not suddenly invalidated.
“A lot of industry groups have really come together to support the constitutionality of the CFPB precisely because they want the CFPB to be treated like a regular agency with recourse to rules,” Gerety said. “They never have to worry about a ‘deus ex machina’ lightning bolt that evaporates all the rules overnight.”
Impact and injunction
Even if the dust settles at the nation’s highest court, the CFPB’s legal wrangling is far from over. A preliminary injunction has been issued against a new cap on credit card late fees. Elsewhere, other avenues exist that may challenge the CFPB’s regulatory actions. As Mr. Gerety noted, the CFPB is subject to the Administrative Procedure Act and the Small Business Review Process, which focuses on the implications of the CFPB’s new rules.
“The CFPB does indeed have ‘special’ oversight and may be subject to litigation…The CFPB’s rules are subject to a cost-benefit analysis that other banking institutions are not subject to,” Gerety said. ” If normal channels are maintained, he said, critics and supporters can fight over whether the downstream effects of a particular action are appropriate.
“But this is all just ‘normal’ government agency territory,” Gerety said, adding that the agency’s specific activities and rulings will be debated further. For example, the CFPB’s credit card late fee regulations, which are currently under litigation, call attention to the how, why, and where of the CFPB’s actual attempts to redefine and direct how businesses engage with purpose. It provides a microcosm of what should be done. consumer. While critics may charge, and banks may argue, that caps on card fees limit access to credit and potentially increase the cost of that credit, Gerety said competition and technology are driving these concerns. He argued that it is a powerful force that has the potential to alleviate the
“Credit card late fees are determined by the macro environment and monetary policy,” Gerety said. And addressing concerns that the lack of late fees and penalties could encourage nefarious behavior, Gerety said technology is helping banks and other companies proactively communicate in real-time. They claimed that they existed and that they could stop transactions in the event of an overdraft or fine. – To deter abuse of the system, for example by providing sufficient funds or short-term loans to bridge the gap between expenses and bank deposits.
Mr. Gerety also highlighted the evolving role of technology in shaping financial services and regulatory approaches. Advances in FinTech are introducing new solutions to manage risk and protect consumers, challenging traditional regulatory frameworks.
“Banks today, thanks to technology, can block transactions if funds are insufficient,” Gerety points out. “From a fintech perspective, we think the world of options has changed a bit in terms of what is possible.”
