Our Take
The CFPB has cleared a major legal hurdle but there are more challenges to come. This week’s decision confirms that the CFPB is here to stay, removing the possibility that virtually every rulemaking and action taken by the agency would be deemed unconstitutional. While this existential threat is now gone, we expect continued challenges to individual rulemaking and guidance by the agency - as we have seen with the small business lending rule and updates to its exam manual - by alleging that the CFPB (a) issued the rulemaking or guidance arbitrarily and capriciously, and (b) failed to perform an adequate cost benefit analysis. If the Supreme Court pares back agencies’ abilities to interpret their own statutory authority in an upcoming decision regarding “Chevron deference,” the door will open for even more legal challenges around the CFPB’s interpretation of terms such as “unfair, deceptive, or abusive acts or practices” as well as its ability to oversee nonbanks and areas such as AI and digital currency.
Despite these challenges, we expect that the agency will go full steam ahead with its investigations, enforcement and rulemaking agenda. Firms should anticipate continued high scrutiny of areas that have become key priorities under Director Chopra’s tenure such as fees and contract clauses that the agency considers unfair, deceptive or abusive as well as issues related to fair lending, anti-competitive practices and big tech companies offering financial services. As evidenced by its enforcement action, updated small business lending compliance schedule, and the fact that the agency is actively recruiting enforcement attorneys, the CFPB’s already vigorous pursuit of its agenda is set to only pick up.
Our Take
Gruenberg in the hot seat with little insight on policy questions. The embattled FDIC Chair left the hearings with a heavy load of criticism but few indications that he will need to leave his post. Without direct calls for his resignation from Democrats or the Biden Administration, it is unlikely that Republican pressure will be enough to cause Gruenberg to step down with a packed agenda of unfinished rulemaking on the table. With the vast majority of questions focused on FDIC misconduct allegations, there were few attempts to grill the regulators on specifics of their plans for Basel III endgame and other rulemaking. While they stated that they have not reached a decision to finalize or re-propose the rule, their answer to Senator Warren on finalization by fall calls into question whether there will be enough time to issue, receive feedback and finalize a new proposal by that deadline. However, Republican invocations of the Administrative Procedure Act indicate that they are ready to take legislative or legal action if the agencies finalize the existing proposal with significant changes and no opportunity for the public to provide comments. Clearer indications of what will change and how substantial it will be could come “relatively soon” through the Fed’s delayed impact analysis.
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Change remains a constant in financial services regulation. Read our take on the latest developments and what they mean.
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