In the wake of the devastating 2008 financial crisis, Congress recognized the need for a dedicated federal agency to protect consumers in the financial marketplace. Out of this realization, the Consumer Financial Protection Bureau (CFPB) was born with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.
However, the CFPB’s existence and authority have not gone unchallenged. In a recent landmark case, the Supreme Court confronted a pivotal question: Is the CFPB’s funding mechanism constitutional? The Court’s resounding affirmative response not only preserves the CFPB’s mission but also carries implications for consumers, especially those navigating the world of mortgage loans.
In this article, we’ll look into the CFPB’s origins, its role in protecting consumer rights, and the significance of the Supreme Court’s recent decision upholding its funding structure. We’ll pay particular attention to how the CFPB’s continued existence benefits homeowners and aspiring homeowners as they interact with mortgage lenders.
The Birth of the CFPB
To fully grasp the CFPB’s importance, we must first journey back to its origin in the aftermath of the 2008 financial meltdown. As the nation reeled from the burst of the housing bubble and the ensuing Great Recession, it became clear that the existing patchwork of consumer financial protection laws and agencies was inadequate. Predatory lending practices, particularly in the subprime mortgage market, had run rampant, trapping countless homeowners in loans they couldn’t afford and ultimately catalyzing a wave of foreclosures.
Recognizing the urgent need for reform, Congress created the Dodd-Frank Act, a sweeping piece of legislation designed to prevent another financial catastrophe. Central to this effort was the creation of the CFPB, a new federal agency tasked with enforcing consumer financial protection laws and regulating the offerings of banks, credit unions, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors, and other financial companies.
The CFPB was intentionally designed to be independent and insulated from political pressure and industry influence. To achieve this, Congress gave the agency a unique funding mechanism.
Instead of relying on annual appropriations from Congress, the CFPB receives its funding directly from the Federal Reserve, up to a capped amount. This arrangement allows the CFPB to operate without fear of its budget being slashed by lawmakers beholden to special interests.
From its inception, the CFPB has been a game-changer for consumers. It has written rules to rein in abusive practices by mortgage lenders, payday loan companies, and debt collectors. It has created a complaint database where consumers can report problems with financial products and services. It has also pursued enforcement actions against companies that violate consumer financial protection laws, securing billions of dollars in relief for harmed individuals.
For homeowners and would-be homeowners, the CFPB’s impact has been especially profound. By cracking down on predatory mortgage lending practices and improving disclosures, the agency has helped to prevent a repeat of the reckless behavior that fueled the 2008 crisis. It has also given consumers a powerful ally in navigating the often bewildering process of obtaining and managing a mortgage.
The Supreme Court Challenge
The CFPB has faced attacks from industry groups and their allies in Congress. In 2017, a group of payday lenders filed a lawsuit challenging the constitutionality of the CFPB’s funding mechanism, arguing that it violated the Appropriations Clause of the Constitution, which gives Congress the power of the purse.
The case made its way to the Fifth Circuit Court of Appeals, which sided with the payday lenders in 2022, ruling that the CFPB’s funding was indeed unconstitutional. The decision sent shockwaves through the consumer advocacy community, raising fears that it could invalidate years of CFPB actions and open the door to further challenges to the agency’s authority.
Recognizing the high stakes, the CFPB appealed the decision to the Supreme Court. In May 2024, the Court issued its ruling, delivering a resounding victory for the CFPB and consumers. In a 7-2 decision penned by Justice Clarence Thomas, the Court held that the CFPB’s funding mechanism is constitutional and does not violate the Appropriations Clause.
As Justice Thomas explained, the Constitution does not require that all federal spending be approved through annual appropriations. Instead, it simply mandates that no money can be drawn from the Treasury unless authorized by an appropriation made by law. The CFPB’s funding, which comes from the Federal Reserve’s earnings rather than the Treasury, satisfies this requirement because it was authorized by Congress in the Dodd-Frank Act.
The decision was a relief for consumer advocates, who had warned that an adverse ruling could have crippled the CFPB and left consumers vulnerable to financial predation. It also removed a cloud of uncertainty that had been hanging over the agency for years, allowing it to refocus on its core mission of protecting consumers.
What the Ruling Means for Mortgage Borrowers
For consumers in the mortgage market, the Supreme Court’s decision is especially consequential. Had the Court ruled the other way, it could have called into question a host of CFPB regulations and enforcement actions that have made the mortgage process safer and more transparent for borrowers.
One of the CFPB’s signature achievements in this area is the "Know Before You Owe" mortgage disclosure rule, also called the TILA-RESPA Integrated Disclosure (TRID) rule.
Implemented in 2015, the rule streamlined and improved the disclosures that borrowers receive when applying for and closing on a mortgage. It replaced four overlapping disclosures with two new forms: the Loan Estimate, which provides a clear summary of key loan terms and estimated costs, and the Closing Disclosure, which gives borrowers a detailed accounting of their final loan terms and closing costs.
The TRID rule has been a boon for mortgage shoppers, making it easier to compare loan offers, understand the true costs of a mortgage, and avoid surprises at the closing table. It has also forced lenders to be more accurate and transparent in their disclosures, lest they face stiff penalties from the CFPB.
Another way the CFPB has protected mortgage borrowers is by cracking down on abusive servicing practices. In the wake of the financial crisis, many struggling homeowners were subjected to lost paperwork, erroneous fees, and wrongful foreclosures by their mortgage servicers.
The CFPB responded by issuing comprehensive mortgage servicing rules in 2014 that require servicers to provide clear monthly statements, promptly credit payments, correct errors on request, and give borrowers ample notice and due process before pursuing foreclosure.
The servicing rules have given homeowners protections and avenues for recourse when servicers misbehave. They’ve also incentivized servicers to work with borrowers to find alternatives to foreclosure, such as loan modifications, whenever possible. These are just a couple of examples of how the CFPB has made a tangible difference for mortgage borrowers.
The Path Forward
With its constitutional status affirmed by the nation’s highest court, the CFPB can now focus on addressing consumer financial challenges of the present and future. In the mortgage market, that means continuing to monitor lenders and servicers for compliance with CFPB rules, taking enforcement action against bad actors, and updating regulations as needed to keep pace with industry innovations and emerging risks.
One area where the CFPB is likely to remain active is in combating discrimination in mortgage lending. Despite decades of progress, studies continue to find disparities in loan denial rates and costs for minority borrowers compared to similarly situated white borrowers. The CFPB has made fair lending enforcement a top priority, using its supervisory and enforcement authority to identify and stamp out discriminatory practices.
Another priority for the CFPB will be protecting borrowers in the rapidly growing nonbank mortgage sector. In recent years, a growing share of mortgage loans have originated from nonbank lenders, such as online companies and mortgage brokers, who are not subject to the same level of federal oversight as traditional banks.
While many nonbank lenders operate responsibly, others have been accused of luring borrowers into risky or overpriced loans. The CFPB has pledged to step up its scrutiny of the nonbank sector to ensure that all borrowers are treated fairly regardless of where they obtain their mortgage.
The CFPB is also likely to keep a close eye on the growing use of artificial intelligence (AI) and machine learning in mortgage underwriting and servicing. While these technologies hold the promise of making the mortgage process faster and more efficient, they also raise concerns about potential bias and discrimination if not properly designed and monitored. The CFPB has already issued guidance on the responsible use of AI by financial institutions and will no doubt continue to engage with stakeholders to develop best practices in this area.
Finally, the CFPB will continue to serve as a resource for consumers seeking information and assistance with mortgage-related issues. Through its website, consumer complaint database, and outreach efforts, the agency provides a wealth of free tools and resources to help borrowers make informed decisions and resolve problems with their lenders or servicers.
Conclusion
The Supreme Court’s decision in CFPB v. Community Financial Services Association of America is a landmark victory for consumers and a validation of the CFPB’s vital role in the financial marketplace. By affirming the constitutionality of the CFPB’s funding mechanism, the Court has ensured that this consumer watchdog can continue its mission of protecting borrowers from abusive practices and promoting a fair and transparent financial system.
For mortgage borrowers, in particular, the CFPB’s ongoing presence is valuable. As the agency continues to enforce its mortgage rules, monitor the market for emerging risks, and educate consumers about their rights and options, borrowers can have greater confidence that they will be treated fairly and honestly by their lenders and servicers.
At Consumer Law Attorneys, we share the CFPB’s commitment to fighting for consumers. As a law firm dedicated to homeowner and debtor rights, we see firsthand the difference that strong consumer protections can make in people’s lives. Whether you’re facing foreclosure, dealing with a predatory lender, or simply trying to navigate the mortgage process, we’re here to help. With advocates like us on your side, you don’t have to face these challenges alone.
