NerdWallet's Smart Money Podcast - How the CFPB's Supreme Court Win Helps Consumers

Episode Date: May 22, 2024

Learn how the recent Supreme Court ruling on the Consumer Financial Protection Bureau (CFPB) affects your finances. How does the CFPB protect consumers? Why does the recent CFPB court decision matter? Hosts Sean Pyles and Anna Helhoski discuss the recent Supreme Court decision that upheld the CFPB’s funding structure, explaining its significance and what it means for consumer protections. They also explain the history and function of the CFPB, including its role in consumer finances, and provide actionable insights on how you can leverage its resources to resolve financial issues, including how to file a complaint with the CFPB. Plus: the broader implications of the Supreme Court ruling for other federal agencies.  Then, Sean and Anna cover the latest money headlines, including the Dow Jones hitting 40,000 for the first time, the current state of gas prices ahead of Memorial Day weekend, and new pricing transparency laws for cruises. In their conversation, the Nerds discuss: CFPB Supreme Court ruling, payday loans, financial regulation, consumer rights, financial protection, Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, credit card regulations, overdraft fees, Federal Reserve funding, mortgage complaints, student loan complaints, CFPB investigations, consumer complaints, financial watchdog, financial industry regulation, CFPB funding, payday lending rule, consumer finance, financial laws, debt relief, financial accountability, credit card late fees, mortgage protection, loan regulations, financial crisis response, banking regulations, consumer advocacy, credit card complaints, loan complaints, financial enforcement, financial industry oversight, and consumer protection laws. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhosky. And this is our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. We'll go deep into a single topic and then leave you with the latest money headlines. Today, we're talking about the federal agency that protects your financial interests, the Consumer Financial Protection Bureau, or more commonly known as the CFPB. That's right, Sean. The CFPB is charged with executing and enforcing all kinds of consumer

financial law. So you're probably not surprised to hear that its very purpose has long been the ire of the financial industry. Last week, a court decision that threatened to upend the agency's ability to do its job was overturned by the Supreme Court. As a result, the CFPB will be able to keep on keeping on. At NerdWallet, we mentioned the CFPB a lot, but many people might not even realize what it is or how it's been protecting consumers for more than a decade. So let's start off with some background. The CFPB was formed in response to the 2008 financial crisis under the Dodd-Frank Wall Street Reform

and Consumer Protection Act of 2010. That is a mouthful, Anna. It sure is, Sean, but a very important mouthful. The CFPB holds accountable the companies that market the kinds of financial products that I'm sure our listeners are familiar with, credit cards, student loans, mortgages, and the like. The CFPB's main function is to collect consumer complaints and then take action. Those complaints are a way to make the agency aware of potential issues with financial companies and products so they can hold those companies accountable. That's often done through legal means. It also investigates company practices and creates new regulations to protect consumers.

Most recently, it created a rule banning credit card issuers from charging late fees higher than $8, and another rule to restrict overdraft fees in banking. Right now, it's in the midst of investigation into airline mileage programs tied to credit cards. So now that we know the role of the CFPB for consumers, let's turn back to the lawsuit that threatened its existence. The original suit's main focus was a rule the agency issued for payday lenders back in 2017. For those who don't know, payday loans are short-term, very expensive, high-risk loans that are meant to be repaid quickly. They're typically used in emergency situations by those who can't meet requirements to get traditional personal loans. That's right. Financial experts usually caution against using payday loans because of their high interest rates and fees. Also, if you can't repay a payday loan, it often leads to a cycle of debt. The rule at the center of the

lawsuit prevents payday lenders from issuing loans to borrowers without first finding out if they can repay the debt. It also says that lenders can't take money out of borrowers' bank accounts for mispayments unless the borrower says that it's okay. Like Sean mentioned earlier, the lawsuit itself focused mainly against the payday lending rule, but it also said that the CFPB's funding mechanism wasn't constitutional. Listeners, for context, the CFPB's funding comes from the Federal Reserve System, not Congress. It was meant to safeguard the Watchdog Agency's funding against partisan politics. I want to reiterate that the funding structure is important for the agency's effectiveness.

By operating outside of congressional appropriations, it doesn't have to kowtow to special interests, so it can take pretty aggressive enforcement actions on behalf of consumers. It's also worth mentioning that the CFPB is not the only agency to be funded like this. There's also the Federal Reserve itself, the FDIC, as well as programs like Medicare, Medicaid, and Social Security. That's right. So here's how the case went down. The suit was first filed by two groups representing payday lenders in 2018. They lost the case and appealed to the Fifth Circuit Court. There, a panel of judges said that the claim against the payday lending rule didn't hold water, but they did agree with the claim against the CFPB's funding mechanism. The Biden administration obviously was not happy with that decision and appealed to the Supreme Court. The court agreed

to take it on and justices heard oral arguments last October. Fast forward to last week, the Supreme Court rejected the payday lenders' claims against the CFPB in a 7-2 vote with conservative justices Neil Gorsuch and Samuel Alito Jr. dissenting. This decision was very fortunate for the CFPB and the greater American consumer. Here's why. If the CFPB's funding mechanism was ruled unconstitutional, it would have made it extremely difficult for the agency to carry out enforcement. If the Fifth Circuit Court's ruling was upheld, it could have also challenged the agency's past legal actions and regulations.

And it could have left other agencies that are similarly funded vulnerable to other legal challenges. But of course, that didn't happen. Nope. And in response, the CFPB released a statement saying, quote, for years, lawbreaking companies and Wall Street lobbyists have been scheming to defund essential consumer protection enforcement. The Supreme Court has rejected their radical theory that would have devastated the American financial markets. So it looks like the CFPB isn't going anywhere for now. Another win for consumers. And just so listeners know, if you have a grievance with a financial company, product, or service,

then you can lodge your own complaint with the CFPB at consumerfinance.gov slash complaint. Your complaints don't just get thrown in the void either. The CFPB falls up with companies that then have to respond to your complaint, which is made publicly available on the Consumer Complaint Database. Sometimes enough people make complaints about the same product or financial company, 205 million consumers and totaled $20.7 billion in monetary compensation, principal reduction, canceled debt, and other relief. Not too shabby, Sean. Up next, a few money headlines from the last few days. So, Anna, let's take a moment to mark a recent milestone on Wall Street. Dow 40,000. Indeed. The Dow Jones Industrial Average touched 40,000 for the first time a few days ago.

What does it mean? Not much in real terms, but psychologically for a lot of investors, it's a pretty big deal. We do like our round numbers, don't we? But of course, the Dow is not the market, and the market is not the economy. That said, the Dow Index does hold some of America's, the world's biggest companies, blue chips as they're called. So Wall Street definitely pays attention to moments like this. And the Dow isn't the only index touching record highs. The Nasdaq Composite Index hit a record close on Monday. All that said, as we always caution here on Smart Money, don't be paying a lot of attention to daily

or even weekly market swings. Heck, a quarterly peak at your retirement account returns might even be too much. So take Dow 40,000 for what it is, an interesting milestone. And then go back to enjoying spring and getting ready for the holiday weekend. Speaking of the weekend, Anna, I know last week you and I both revealed that we don't have much planned for the unofficial start of summer. but you wrote a piece recently about how gas prices are slowing their roll a bit ahead of what's often a road trip filled weekend. Yeah, it's good news for drivers. Gas prices are down a bit to an average $3.60 a gallon, according to AAA, and haven't

changed much over the last few weeks. That said, overall prices are up 51 cents a gallon since the start of the year. Nobody likes to hear that, but here's even more context. They may be up for the year, but they're down significantly from a couple years ago, 2022, when the highest average price recorded was just over five bucks a gallon. Prices tend to rise around this time of year because of all the travel people are doing and a switch to summer blend gasoline. That's more expensive to make. So you've got the combo of higher demand and a more expensive product. Well, I'm not planning any long trips, but I do think a drive to the river or a park might be nice, even though I'm sticking around and cat sitting for a friend. Agreed. Or maybe just a nice walk around the neighborhood or a run in your case. Definitely not mine.

And finally today, Sean, a bit more from the travel front. I know you're not a fan of cruises. That's a nope. Me either. But for those who are looking to set sail on the seas with a cruise vacation, changes are coming to the way many of them are priced, all thanks to a new law in California. Yeah, California's honest pricing law will go into effect on July 1st, and it basically says that cruise lines have to tell you all of the pricing up front. This sounds very similar to some of the rules that the U.S. Transportation Department has

laid out for airlines. This law in California would tamp down on all of those seemingly low, low cruise prices that end up costing way more once they add on things like taxes and fees and port expenses. Several cruise operators say they'll implement those changes throughout their fleet pricing, not just in California. They include Celebrity, Princess, Carnival Cruises, and Royal Caribbean International. Disney already includes everything in the initial cruise price. But this rule does not include things like tipping or special dining packages. You'll also still pay separately for activities onshore.

And that's what we saw and heard over the past week in Money News. Let us know what we missed and send us the headlines that you've seen and want to hear more about. That's it for this week's Money News. We always welcome your money questions and comments. Turn to the nerds and call or text us with your questions at 901-730-6373. That's 901-730-NERD or send a voice memo to us at podcast at nerdwallet.com. And remember to follow, rate, and review us wherever you're getting this podcast. Today's episode was produced by Tess Biglin and edited by Rick Vanderkneife. Sarah Brink, Mixer Audio.

Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.