As the financial services industry continues to monitor the proceedings in Community Financial Services Association of America v. Consumer Financial Protection Bureau, an industry group composed of the Mortgage Bankers Association (MBA), National Association of Home Builders (NAHB), and National Association of REALTORS® (NAR) has filed a brief as amici curiae cautioning the Supreme Court against a ruling that could call into question all of the CFPB’s regulations. Writing in support of neither party, the group focuses its argument on the importance of limiting the impact any ruling may have on the consumer finance industry. While cautioning that the group intends to express neither support nor objection to the merits or legality of the CFPB’s past actions, the brief emphasizes “the potentially catastrophic consequences that a decision drawing those rules into doubt could have on the mortgage and real-estate markets.”
Even if the Court strikes down the Payday Lending Rule at issue in CFSA v. CFPB, the housing industry group calls for “a circumscribed ruling that does not call into question other crucial regulations issued by the CFPB over the past years while receiving funding under 12 U.S.C. § 5497.” Emphasizing the significant role that CFPB plays in the industry, the group notes that “virtually all financial transactions for residential real estate in the United States depend upon compliance with the CFPB’s rules, and consumers rely on the rights and protections provided by those rules.” Moreover, “the industry has invested billions of dollars into structuring its operations for compliance” with those rules. If the Court opens the door to invalidating not only the Payday Lending Rule but all rules promulgated using funds appropriated through the mechanism at issue, the group warns that this “could set off a wave of challenges and the housing market could descend into chaos.”
MBA, NAHB, and NAR identify several examples of the areas in which housing market participants rely on CFPB rules and guidance. The group first highlights the benefits to consumers of the disclosure requirements under TRID (the TILA-RESPA Integrated Disclosure Rule, codified at 12 C.F.R. parts 1024 and 1026, which integrated and simplified the previous disparate disclosure requirements of the Truth in Lending Act and Real Estate Settlement Procedures Act). The group next addresses the borrower protections promulgated under CFPB’s Regulation X, particularly with regard to the procedures for noticing and correcting servicer errors and creating nationwide standards for loss-mitigation applications prior to foreclosure. They also highlight the benefits to lenders of the CFPB’s ability-to-pay safe-harbor rule, which deems certain mortgages with an annual percentage rate at or below a weekly published rate to be compliant with TILA ability-to-pay requirements. Relying on the lowered legal risk profile created by this safe-harbor rule, lenders have originated millions of loans that might otherwise have been unavailable to purchasers.
To further underscore the degree to which these CFPB rules impact the housing finance industry, the group notes that several states—including New York, California, and Texas—statutorily require lenders to demonstrate adherence to Federal law in addition to state law, a process made simpler by CFPB’s role as the standard-setter for Federal financial regulators. If a ruling in CFSA v. CFPB called all of these rules into question, the group argues that the resulting uncertainty surrounding compliance with both state and Federal law would cause lenders to pull back on issuing new loans, with devastating consequences for homebuyers, builders, and real estate professionals. The reduced availability of credit would shift the housing market “toward the relatively few buyers who can afford to purchase a home with cash—all while the loss of financing depressed home values and thus the value of bank-owned residential mortgage-backed securities, potentially triggering solvency issues for some banks.”
To avoid these adverse consequences, the Court should follow its own example from Seila Law—the last time it addressed the Dodd-Frank Act—and sever any unconstitutional portions of the statute without disrupting the rest. The group notes that:
As Seila Law recognized, the Dodd-Frank Act has an express severability clause. 140 S. Ct. at 2209. Section 5302 of Title 12—called “Severability”—provides that “[i]f any provision of this Act” or any provision’s application in a given situation “is held to be unconstitutional, the remainder of this Act …shall not be affected thereby.” So “[t]here is no need to wonder what Congress would have wanted” under the circumstances here, “because it has told us.” Seila Law, 140 S. Ct. at 2209.
Pointing to the CFPB’s own brief, the industry group suggests that several provisions could be severed from § 5497 while leaving in place the statutory framework that allows CFPB to operate and fulfill the role Congress set out for it. For example, the provision that the CFPB’s funds “shall remain available until expended” (§ 5497(c)(1)) or that the agency’s budget shall not be subject to “review” by the Appropriations Committees (§ 5497(a)(2)(C)) could be removed without impacting the agency’s regulatory authority. Given the availability of this approach, MBA, NAHB, and NAR argue that “[t]he funding issue before the Court… should not be construed to implicate the CFPB’s substantive authority.” As a further step to minimize the regulatory disruption of an affirmance, the group calls on the Court to recognize explicitly that rules not presently encompassed by the question before it have “de facto validity.” The Court can also stay its judgment to allow Congress time to enact a proper funding mechanism without invalidating past acts funded through the unconstitutional mechanism, as it did in Buckley v. Valeo, 424 U.S. 1, 142-43 (1976), and Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 88 (1982). Even more so than in those cases, the industry group emphasizes that the intent of Congress to enable the CFPB’s regulatory actions is not in doubt. In sum, MBA, NAHB, and NAR urge that “the public interest demands” that the Court “mitigate the adverse consequences of a ruling that would call all the CFPB’s rules into question.”
Several other amici curiae highlight the potential impact on the financial services industry, and consequently on consumers and the economy in general, if the Court’s decision disrupts existing CFPB regulations beyond the Payday Lending Rule.As of May 15, the following amici have filed briefs in support of Petitioners:
- Farm Action, et al. – Amici argue that the Fifth Circuit’s reading of the Appropriations Clause threatens the Farm Credit System, including the Farm Credit Administration, and express concern with the potential loss of CFPB activities that expand access to credit in the agricultural sector.
- States of New York, et al. (New York, Arizona, California, Colorado, Connecticut, Delaware, Hawaiʻi, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, and Wisconsin, and the District of Columbia) – Amici argue that their states have a compelling interest in preserving the validity of the CFPB’s regulatory and enforcement actions, and that “[t]he Fifth Circuit’s vacatur of a completed CFPB action is neither justified nor compelled by law as a remedy for a purported Appropriations Clause violation.”
- Community Development Financial Institutions and Credit Unions (Including Self-Help Credit Union, the Center for Responsible Lending, and National Association of Latino Community Asset Builders) – Amici argue that small financial institutions rely on the body of rules, policies, and practices developed by the CFPB, and interrupting its operations would cause “massive disruption.”
- Professors of History and Constitutional Law – Amici argue that Congress’s ability to direct how money should be drawn from the Treasury should not be narrowly constrained by “judicial second-guessing” and that “Congress has authorized self-funding and indefinite appropriations since the founding.”
- Lawyers’ Committee for Civil Rights Under Law, et al. – Amici argue that “the stable means of funding Congress set out in law was, and is, a constitutionally valid choice grounded in Congress’s knowledge of events contributing to the crisis, the long track record of similarly funded regulators, and the plain text of the Constitution’s Appropriations Clause.”
- Military and Veterans Organizations – Amici argue that “CFPB plays a unique and essential role in protecting servicemembers’ financial health and readiness” and that the “Department of Veterans Affairs is funded in a range of ways, some of which could be called into question by this case.”
- National Treasury Employees Union – Amicus, the bargaining unit representative of employees at the CFPB, argues that the Fifth Circuit’s ruling is at odds with Supreme Court precedent “that the Appropriations Clause requires only that the payment of Treasury funds ‘be authorized by statute.’”
- Current and Former Members of Congress – Amici, identifying themselves asmore than 140 current and former members of Congress, including sponsors and drafters of Dodd-Frank, argue that Congress has authority to exercise its appropriations power in a manner “tailored to the problem at hand” and that this “flexibility is precisely how the Framers drafted the Constitution, leaving the ultimate choice of how to appropriate in Congress’s hands.”
- 90 State and Local Nonprofit Organizations – Amici argue that state constitutions’ appropriations provisions mirror the U.S. constitution, that state legislatures regularly establish independently funded regulatory agencies to meet a wide variety of purposes, and that adopting the Fifth Circuit’s ruling could “hobble agencies throughout the states.”
- AARP and AARP Foundation – Amici argue that upholding the Fifth Circuit’s interpretation threatens the protections that older Americans receive from the CFPB’s activities.
- Public Citizen Litigation Group on behalf of Ten Consumer Advocacy Organizations (Americans for Financial Reform Education Fund, Consumer Action, Consumer Federation of America, Consumer Reports, Electronic Privacy Information Center, National Association of Consumer Advocates, National Consumer Law Center, Student Borrower Protection Center, U.S. Public Interest Research Group) – Amici argue that the CFPB’s funding mechanism functions as an appropriation regardless of the specific label Congress used to describe it in the statute, and that it is wrong to interpret this as “insulat[ing] the CFPB from Congress’s appropriations power.”
- Financial Regulation Scholars – Amici argue that defunding the CFPB would have numerous detrimental economic consequences and that “[t]hese effects would reach entities regulated and protected by the other federal bank regulators, which are funded in the same way as the CFPB.”
Respondents’ brief is due July 3, with supporting amicus briefs due July 10. We will continue to monitor and report on developments in this case, given the potential wide-reaching impact on the industry.