Payday Lenders Challenge Financial Consumer Watchdog's Budget Structure In Supreme Court: What It Means For Your Wallet

The U.S. Supreme Court is scheduled to hear a case on Tuesday concerning the funding structure of the Consumer Financial Protection Bureau (CFPB), the agency created following the 2008 financial crisis to protect consumers from predatory lending and other deceptive practices.

Central to the case, named CFPB v. Community Financial Services Association of America, is the constitutionality of the CFPB’s funding. Currently, the CFPB draws its annual funding from the Federal Reserve rather than from budgets approved by Congress.

A lower court — the 5th U.S. Circuit Court of Appeals — ruled in October of last year that the CFPB's funding mechanism violates the Constitution's appropriations clause, which bestows Congress with the power of the purse.

Payday lenders, represented by trade groups, started the challenge against the CFPB, according to a Reuters report. They targeted a 2017 CFPB rule that prohibited lenders from charging a borrower’s bank account after two consecutive failed attempts due to insufficient funds.

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If the Supreme Court sides with the trade group here, the implications for consumers are palpable.

Any regulations the CFPB has issued over the past 12 years — covering areas like credit cards, mortgages, and debt collection — could be nullified. More to that, the funding model of other regulators, like the Federal Reserve, and programs like Social Security could come under scrutiny.

A judgment in the case could be rendered by June of next year.

While the case is in its early stages, investors should keep an eye out for stocks exposed to the payday loan sector, including: Firstcash Holdings Inc FCFS, Oppfi Inc OPFI, World Acceptance Corp. WRLD, and EZCORP Inc EZPW.

ETFs like First Trust Multi-Manager Sm Cap Opportunities ETF MMSC, Invesco S&P SmallCap 600 Pure Value ETF RZV, and Invesco Dorsey Wright Financial Momentum ETF PFI that have exposure to payday loans may be impacted.

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