Consider This from NPR - The CFPB On Trial

Episode Date: October 3, 2023

The Supreme Court heard a case Tuesday that threatened the existence of the Consumer Financial Protection Bureau.NPR's Nina Totenberg reports on the legal arguments in a case brought by payday lenders against the watchdog agency.And NPR's Scott Horsley walks through the track record of the CFPB since its founding in the wake of the 2008 financial crisis.Email us at [e-mail] more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This message comes from Indiana University. Indiana University is committed to moving the world forward, working to tackle some of society's biggest challenges. Nine campuses, one purpose. Creating tomorrow, today. More at iu.edu. When the Consumer Financial Protection Bureau, or CFPB, was founded back in 2011, Philip Glover was relieved. He needed their help right away. Earlier that year, Glover and his wife had been struggling with the plumbing in their home in Johnstown, Pennsylvania. So they called a company to come out and look. They came and worked on the plumbing a little bit, and it kept backing up and backing up, but it never got fixed. And I had to go to another company.

But the first company kept billing them and billing them, even though they hadn't fixed the problem. So Glover called the CFPB and... They sent them a letter, and the next time I got a letter from Roto-Rooter, it was that they would not be billing me any further. I was a corrections officer in the federal government, and I didn't make a lot of money, so that was helpful. Years later, the CFPB stepped in again when a phone company kept billing his family for a landline they had canceled. So we used that agency twice and really felt like they were responsive and helped us. This is exactly the type of thing the Bureau was designed for. The CFPB is the cop on the beat for the finances

of America's families. It handles more than 3,000 complaints every single day, day in and day out. That is Democratic Senator Elizabeth Warren, who first proposed the idea of the CFPB back in 2007 when she was a Harvard law professor. Her idea became law three years later, part of a package of reforms after the 2008 financial crisis. And almost ever since, it has been the subject of attacks from Republicans who say its regulations are convoluted and that it operates without accountability. You vilify entire industries simply because they are politically unsavory in your opinion. The practice of name and shame first, verify later, isn't consumer protection.

It's McCarthyism. That's Republican Congressman Andy Barr of Kentucky talking to the director of the CFPB at a hearing in June. Another Republican, Andy Ogles of Tennessee, was even more blunt. There was an agency that should be disbanded. I'll quote Hamlet, to be or not to be, yours should die a painful death. That death seemed like a real possibility on Tuesday, as the Supreme Court heard a case that threatens the existence of the agency.

Consider this. The CFPB has been fighting for its survival throughout much of its history. If it loses this latest court battle, it could have huge implications, not just for consumers, not just for the Bureau itself, but for other key parts of the government, too. From NPR, I'm Mary Louise Kelly. It's Tuesday, October 3rd. This message comes from WISE, the app for doing things in other currencies. Send, spend, or receive money internationally, and always get the real-time mid-market exchange rate with no hidden fees. Download the WISE app today or visit wise.com. T's and C's apply. This message comes from Indiana University. Indiana University is committed to moving the world forward, working to tackle some of society's biggest challenges. IU makes bold investments in the future of bioscience and cybersecurity, IU makes bold investments in the future of bioscience and

cybersecurity, cultivates visionary work in the arts and humanities, and prepares students to become global citizens by teaching more languages than any other university in the country. Indiana University. Nine campuses, one purpose. Creating tomorrow, today. More at IU.edu. On the TED Radio Hour, clinical psychologists John and Julie Gottman are marriage experts. And after studying thousands of couples, they have found... Couples who were successful had a really different way of talking to one another when there was a disagreement or a conflict. How to be brave in our relationships. That's on the TED Radio Hour podcast from NPR.

It's Consider This from NPR. Tuesday's Supreme Court case pitted the Consumer Financial Protection Bureau against payday lenders. The lenders, who are policed by the CFPB, argued that the way the agency is funded is unconstitutional. A federal appeals court has already ruled in the lenders' favor. If the high court agrees, it could put the CFPB's very existence in jeopardy. For more, we'll hand things over to NPR legal affairs correspondent Nina Totenberg, who was following the arguments. Last year, the Fifth Circuit Court of Appeals ruled that the CFPB's structure is unconstitutional because instead of an annual congressional appropriation, Congress set the agency's

funding at a capped amount that comes from banking fees paid to the Federal Reserve System. The government appealed to the Supreme Court because many other agencies are similarly funded, including the Federal Reserve itself, the FDIC, which insures bank deposits, the Office of the Comptroller of the Currency, which charters and regulates all national banks, and potentially even Social Security and Medicare, which are funded by a specific tax. At the high court today, Solicitor General Elizabeth Prelogar defended the CFPB's funding mechanism, noting that the Constitution's framers created similar funding structures. The very first Congress appropriated without specifying a fixed sum. The first act that it

enacted that was an appropriation specified up to a particular cap of spending that was authorized. But Chief Justice Roberts sounded skeptical. You have a very aggressive view of Congress's authority under the Appropriations Clause. Justice Gorsuch asked whether the current rules would apply if the CFPB funds were not capped at $600 million, but a trillion dollars. But Justice Kavanaugh interjected. So Congress could change it tomorrow? Absolutely, Congress could change it tomorrow. Representing the payday lenders on the other side of the argument was former Solicitor General Noel Francisco. Congress has never authorized an agency to pick its own perpetual appropriation. And if it can do that for the CFPB, then you have blessed a regime in which Congress can authorize the executive branch to spend

whatever it wants to fund the entire government. But several of the justices, both conservative and liberal, flatly told Francisco that his argument made no sense to them because it had no limiting principle. Justice Barrett. Mr. Francisco, what would the standard be? Is it like an intelligible principle of money spent? I mean, I think we're all struggling to figure out then what's the standard that you would use? Just assuming that you're right, that there has to be something more than the $600 million.

How do you decide how much is too much? It's difficult to come up with a hard and fast rule that's saying too much is too much. Justice Kavanaugh questioned Francisco's argument that the CFPB is funded by a perpetual appropriation. The word perpetual I'm having trouble with because it implies that it's entrenched and that a future Congress couldn't change it. But Congress could change it tomorrow. And there's nothing perpetual or permanent about this. Francisco seemed to suggest that the problem with the CFPB funding is that it didn't go through an annual line-item congressional appropriation. But Justice Kagan pointed out that standing appropriations like this one were common at the founding. Annual line-item appropriations were some appropriations, but massively not all appropriations.

And so you're just flying in the face of 250 years of history. Justice Thomas also seemed frustrated. I'd like you to complete this sentence. Funding of the CFPB violates the appropriations clause because... Because Congress has not determined the amount that this agency should be spending. Instead, it has delegated to the director the authority to pick his own appropriation, subject only to an upper limit that's so high it's rarely meaningful. A decision in the case is expected next year. NPR legal affairs correspondent Nina Totenberg. Elizabeth Warren, who, as we mentioned, was a driving force behind the creation of the CFPB,

framed this case as a consequence of the agency's track record. The CFPB is under attack because it's good at what it does. And the American people support it. We are going to spend some time digging into that track record and the history of the agency's fight with payday lenders with NPR's Scott Horsley. Hey, Scott. Hi, good to be with you. So I learned today you have been watching this for a long time, like way longer than I realized. Give us the backstory. watchdog agency should be on. But the payday lending story goes back even further. I started following the industry around the turn of the century when it was still a pretty new industry.

I was working in San Diego where there are a lot of military people and payday lenders often spring up around military bases to make loans to sailors and Marines who don't have a lot of money but do have a dependable paycheck. And other people also rely on payday lenders. Back in 2001, I spoke to Trudy Robideau. She borrowed $800 to make a car repair. She wasn't able to pay it back right away, so she was invited to take out more loans. Ka-ching, you're hooked. You know, you can feel the hook right in your mouth, and you don't know it at the time, but it gets deeper and deeper. I was having to get one to pay another. It's a real nightmare. Eventually, that $800 loan wound up costing Robidoux thousands of dollars. And that's exactly what Elizabeth Warren was trying to prevent when she conceived of the Consumer Financial Protection

Bureau. She famously said, if a toaster had a one in five chance of blowing up, the government wouldn't let you sell it. So there ought to be a similar safeguard for financial products. I think I have one of those toasters in my kitchen right now, Scott. But staying focused here, the payday lenders are now, of course, at the heart of this challenge to the way that the Bureau is funded. This challenge is now before the Supreme Court. What is the argument that they're making? They argue that the Bureau is funded out of fees that the Federal Reserve collects. It's

not reliant on an annual appropriation from Congress. And Erin Witte, who's with the Consumer Federation of America, says that was the goal to insulate the watchdog from partisan politics. The way the CFPB was designed was intentional. Congress didn't want an agency whose effectiveness was going to ebb and flow with the whims of partisan politics. We were all reminded just this past weekend why it's risky to rely on Congress to renew your funding every year. And there are lots of other government agencies that don't have to have an annual appropriation, including the Federal Reserve itself. Still, the payday lenders argue this is unconstitutional, and if they succeed in that argument, then the CFPB won't be the only agency whose future is called into question. But if the point of setting up the Bureau and having it

financed this way was to insulate it from politics, I mean, I'm looking back at the last dozen years or so that the Bureau has not been entirely insulated from politics, has it? No, it has been a punching bag. When Donald Trump was president, he installed Mick Mulvaney as director of the Bureau. Mulvaney had been one of the most outspoken critics of the watchdog as a member of Congress. And as director, he and other Trump appointees worked to really water down the Bureau's enforcement efforts. For example, part of the crackdown on payday lenders had been to say they had to make sure a borrower would be able to repay a loan without getting sucked into a cycle of debt. And that provision was actually struck down during the Trump administration. This followed an earlier battle in which the Supreme Court ruled that the director of the

Watchdog Bureau can be fired by the president. Trump used that power to put his own stamp on the agency. So then President Biden has done so as well. For the last few years, we've had a much more active consumer protection agenda. And how does this play with the American people, Scott? You know, the CFPB is popular with the public. Polls show Democrats and Republicans alike feel it's useful to have an agency that's looking out for them in their dealings with often much more sophisticated financial institutions. Over the years, the Bureau has recovered some $17 billion for consumers. It's gone after not only predatory lenders, but debt collectors and student loan servicers and ordinary banks with

their overdraft fees. Mike Calhoun, who heads the Center for Responsible Lending, says no agency is really immune from politics, but the Bureau has proven to be pretty resilient and remarkably popular. Consumers like this, and you were going to burn some real political capital to defang it and make it ineffective. Calhoun says the Bureau's been a game changer when it comes to financial regulation, and that's why it's facing a serious challenge for businesses who found the old way of playing the game very profitable. That is NPR's chief economics correspondent. Before that, our White House correspondent. And before that, our San Diego reporter. You're new.

NPR's Scott Horsley. Thank you. Good to be with you. It's Consider This from NPR. I'm Mary Louise Kelly.