Today, the Supreme Court of the United States (SCOTUS) announced it would hear a case challenging the Consumer Financial Protection Bureau’s (CFPB’s) Constitutionality and its ability to regulate predatory lending. This crass assault on consumer financial protections for low-income and minority consumers—including LGBTQI+ communities—has serious implications for the CFPB, the federal government, and the whole economy.
The plaintiffs in the lawsuit—Community Financial Services of America, a lobbying group for payday lenders—sought to overturn an anti-predatory lending rule approved by the CFPB in 2017. Last October, the Fifth Circuit Court of Appeals vacated the rule, declaring the CFPB’s funding structure illegal because it occurred outside the Congressional appropriations process. This extreme ruling threatens to unravel the Agency’s prior work and the Bureau’s future funding, as well as funding for other agencies that support themselves outside of Congressional appropriations.
The CFPB was created in response to the financial crisis and Great Recession brought on by deceptive and predatory financial products and practices. Under the 2010 law that Congress enacted, the Dodd-Frank Act, the CFPB draws its budget from the Federal Reserve. It receives a maximum of 12% of the Fed’s 2009 operating budget, adjusted for inflation. Fed expenses, in turn, are covered by money collected from the regional reserve banks in the Fed system. Several agencies are funded outside Congressional appropriations, including the Fed, banking regulators, the U.S. Mint, and the U.S. Postal Service.
Since its creation, the CFPB has returned $13.5 billion in relief to about 175 million consumers through restitution, canceled debts, and $1.8 billion in civil penalties. The existence of the CFPB has been relatively uncontroversial amongst everyday Americans, who broadly see the need for a financial services watchdog regardless of their political party. Nevertheless, it has repeatedly been a target for financial services and conservative politicians.
The Bureau’s work has significant importance to issues deeply affecting LGBTQI+ communities and other low-income people in other marginalized communities. For example, LGBTQI+ people are more likely to have student loan debt and struggle with student loan payments. And although LGBTQI+ people are less likely to be homeowners, LGBTQI+ homeowners are more likely to own their homes with a mortgage.
The CFPB also protects consumers from unfair, deceptive, and abusive acts or practices by predatory lenders. CLEAR’s research also shows that LGBTQI+ consumers are more likely to use predatory high-cost forms of credit that target low-income consumers, such as overdrafts, payday loans, pawn shops, and title loans.
Additionally, the CFBP is tasked with enforcing the Equal Credit Opportunity Act (ECOA), which prohibits discrimination in lending based on race, sex, marital status, and age, among other protected classes. In March 2021, the CFPB issued an interpretive rule clarifying that ECOA’s prohibition on sex discrimination also covers discrimination based on sexual orientation and gender identity. This guidance could be reversed by a future administration and still must be legislatively enacted by the Equality Act, Fair Lending for All Act, or similar legislation.
LGBTQI+ consumers experience discrimination in financial services based on their LGBTQI+ identity, particularly trans and BIPOC consumers. Experiences include exclusion denials of service for banking, loans, or other financial services, as well as higher interest rates and fees for the services they do receive. The CFPB is the regulator looking out to protect consumers against such discrimination.
The Bureau’s Consumer Complaint Database also contains countless stories from transgender consumers—and others who have changed their names—that their credit reports fractured, or even disappeared, after their legal name change. Many of these consumers could not get any relief from the “Big Three” credit bureaus (i.e., Equifax, Experian, and Transunion) until they formally complained to the Bureau.
“The CFPB uplifts and protects low-income and minority consumers from exploitation and discrimination in financial services—including communities of color, immigrant communities, the women’s community, and LGBTQI+ people,” said Spencer Watson, Executive Director for the Center for LGBTQ Economic Advancement & Research. “Low-income LGBTQI+ and minority consumers are disproportionately targeted by predatory lenders, excluded by financial service providers, and exploited with higher costs and fees. The CFPB is a critical watchdog that has returned billions to consumers who have been excluded and victimized by unscrupulous banks, lenders, and credit bureaus.”
Clearly, the Supreme Court recognizes the importance of this case—including its significance to the CFPB, agencies like the Federal Reserve, and U.S. consumers’ well-being. This decision has the potential of gutting the CFPB, which conservative politicians have failed to achieve—but such a broad ruling also has the potential to disrupt funding for numerous agencies throughout the U.S. government, with unpredictable effects on the economy. This is why the Court should overturn the Fifth Circuit’s decision: it is a blatantly political decision with no basis in the Constitution or legal precedent.
This is why a broad coalition of organizations, including CLEAR, have come together to defend against this baseless attack on the CFPB and to ensure that our communities are prepared to push back against this and future political assaults on the Bureau.
Spencer Watson, Executive Director
[email protected] | 415-278-7358