How Congress Can Stem Consumer Finance Law Uncertainty
With the 2024 election behind us and the 119th Congress now in session, the political climate has created an opportunity for meaningful statutory reforms of the federal consumer financial laws to become reality.
The 119th Congress should seize the opportunity and take on this initiative for the benefit of consumers as well as the banking and financial services industries.
The opportunity to modernize and reform the federal consumer financial laws comes at a critical juncture. Over the past several years, the federal courts have increasingly ruled against federal administrative agencies, imposing limits on agency executive and rulemaking powers.
This culminated in last summer's U.S. Supreme Court decision in Loper Bright v. Raimondo Enterprises, where the court discarded the 40-year-old Chevron doctrine, holding that agencies were not owed deference in their interpretations of laws passed by Congress.
Decisions curtailing agency power cut in two directions for consumers and financial services industries. On the one hand, in many areas, businesses might welcome limitations on the federal agencies' power.
For example, agencies like the Consumer Financial Protection Bureau have consistently pushed the limits of their legislative mandate to claim new, potent powers of enforcement and rulemaking.
A financial institution may not discover that its interpretation of federal law is deemed incorrect until it is facing an unpleasant and expensive enforcement action. Banks and other financial services providers have long grappled with uncertainties, ambiguities and challenges associated with the federal laws.
Instances of regulation by enforcement, regulation by blog post and nonbinding guidance creating new expectations of the federal regulators have, unfortunately, become all too common and often accepted by industry participants.
In many ways, these tactics were bolstered by the now-overruled Chevron doctrine, which instructed courts to give deference to enforcing agencies' interpretations of ambiguous federal statutes.
On the other hand, administrative agencies have the ability to address the numerous questions that arise under our complex federal laws much more nimbly than Congress. A legal regime that calls every agency decision or interpretation into question and opens them to legal challenges is an unstable one.
Republicans now simultaneously have control of the White House, the U.S. Senate and the U.S. House of Representatives, creating a unique opportunity for the 119th Congress to cooperate with the Trump administration's goal of regulatory reform.
Perhaps more importantly, though, Congress could tackle and fix the rising tide of uncertainty — and, therefore, risk — connected with a legal regime based largely on administrative rules, which can be changed every four years with the coming of a new presidential administration, or even quicker if challenged in court.
Some members of the Trump administration have noted the opportunity provided by the federal courts' general skepticism about agency action.
Vivek Ramaswamy, who had been tapped by Trump to co-head the new Department of Government Efficiency with Elon Musk, has stated that Loper Bright and other related Supreme Court cases will provide DOGE with a springboard to cut regulations.
However, simply revoking federal regulations en masse would cause chaos within the financial system. Instead of undoing regulatory burdens, removing large amounts of regulations would leave businesses trying to operate under their best understandings of often-ambiguous statutes — and facing the consequences of an enforcement action or private lawsuit if a court later disagrees with the interpretation.
Moreover, cutting regulations may not be as straightforward as it sounds. Many federal laws give agencies a statutory mandate to craft implementing rules, and it is not clear that an agency could unilaterally determine that no, or minimal, rulemaking is appropriate.
Even without a specific statutory mandate, courts have held that the removal of federal regulations may be subject to the same rulemaking process as the promulgation of those rules in the first place — meaning, ironically, cutting through the red tape is a process encumbered with red tape.
Therefore, meaningful reform — reform that is durable and that jointly benefits consumers and the broader U.S. financial system — can only be achieved by Congress.
Absent congressional intervention, the post-Loper Bright legal regime is likely to create an increasingly chaotic environment over time, which will only hurt consumers and the industry.
Either agencies will attempt to revoke certain regulations for which they now believe they lack sufficient authority, or courts will invalidate certain regulations once they are challenged and reviewed.
A bank or financial services provider that has relied upon a particular regulation — perhaps one that has been in effect for more than a decade — and spent countless resources structuring its business in a compliant manner could suddenly have that regulation invalidated.
In some cases, only particular sections or provisions of a regulation may be removed, leaving holes and unanswered questions. Additionally, critical consumer protections enacted through regulations could end up no longer being in place, resulting in consumers being exposed to potential harm.
The only solution to these problems is for Congress to act, and relief could come in different forms. Congress could take laws that currently reside in the Code of Federal Regulations and enact some or all of them into statute.
Alternatively, Congress could eliminate uncertainty regarding the durability of existing regulations by ensuring that the applicable agencies have clear and specific delegations of authority where it is warranted.
The CFPB's mortgage servicing rules, mostly found in Regulation X, provide a good example of how Congress could assist industry while simultaneously protecting consumers.
In 2014, the CFPB enacted the mortgage servicing rules relying upon an incredibly broad interpretation of the Real Estate Settlement Procedures Act to justify its purported rulemaking authority.
Under the CFPB's interpretation, RESPA has two unenumerated consumer protection purposes, beyond the four enumerated purposes, which effectively provide it the authority to enact regulations governing nearly all aspects of a mortgage servicer's business.
This includes things like loss mitigation procedures, delinquent loan servicing, successor homeowners and the permissibility of certain fees. Neither RESPA nor any other federal statute explicitly permit the CFPB to enact regulations related to these topics.
The CFPB's broad interpretation of RESPA may have passed muster under the now overruled Chevron doctrine.
However, since Loper Bright, the CFPB has proposed amending the original mortgage servicing rules, relying upon the same statutory authority that it did in the 2014 version, and questions have already been raised regarding the CFPB's rulemaking authority for the original rules and its newer proposed amendments.
This creates risk and uncertainty for the entire mortgage industry. Not only is the CFPB's ability to amend the existing servicing rules now in question but, at some unknown point in the future, a reviewing court could invalidate much of the existing servicing rule framework — or the CFPB under the Trump administration, working with DOGE, could take steps to revoke it.
Either outcome would cause chaos for the industry, which has worked tirelessly for the last decade to ensure that it complies with the servicing rules in Regulation X. It would also eliminate important consumer protections that were enacted in response to the financial crisis.
Congress could address these concerns by enacting servicing rules into Section 6 of RESPA, which already contains certain servicing-related provisions. Although there may be some differences of opinion on the preferred statutory framework, consumers and the industry would both generally benefit from having servicing rules in place, making this an area that need not be hyper-partisan.
Unfortunately, the mortgage servicing rules are not the only existing agency regulations whose future is uncertain. Congress should, therefore, work with the Trump administration to analyze where Loper Bright has caused uncertainty among all the federal consumer financial laws and then take action to address any such instances.
Republished with permission. The original article "How Congress Can Stem Consumer Finance Law Uncertainty" was published by Law360 on Febuary 3, 2025.
