Supreme Court ruling could jeopardize consumer financial protections

In a landmark decision, the U.S. Supreme Court recently overturned the 1984 Chevron doctrine, significantly impacting the ability of executive branch agencies to regulate critical areas like the environment, public health, workplace safety, and financial services. Instead, this decision gives that power to the courts. As district courts become increasingly conservative, the courts are more likely to undermine federal agencies’ efforts to regulate these sectors appropriately. Among the agencies most affected by this ruling is the Consumer Financial Protection Bureau (CFPB), which protects consumers from unfair and abusive financial practices and takes action against banks that break the law.

Since it was created in 2011, the CFPB has redirected $17.5 billion back into the pockets of American consumers and made our financial system fairer and more transparent. Yet some members of the banking sector have mounted consistent legal challenges and public pushback against the CFPB. In fact, the agency just recently survived another Supreme Court ruling this term that, fortunately, upheld the constitutionality of its funding mechanism.

But this new ruling puts the CFPB — and the health of our financial system — at further risk. If the agency is unable to enforce its rules and regulations, it will be less able to prevent financial institutions from taking advantage of consumers and engaging in discriminatory practices. At the same time, banks will face increased uncertainty as courts interpret laws rather than deferring to the expertise of regulatory agencies. This could lead to a lack of uniform standards and even open up room for financial institutions to further challenge regulations put in place to protect consumers and small businesses. This isn’t a hypothetical; the powerful banking lobby has litigated CFPB rules and exploited regulatory loopholes for over a decade. In fact, the subprime mortgage crisis that triggered the 2007-2008 financial crisis was the result of financial institutions exploiting regulatory ambiguities.

Impacts on small businesses and financial inclusion

Underinvested entrepreneurs — particularly women and people of color — will bear the brunt of any future challenges to CFPB regulations. For example, the CFPB's rule on small business lending data requires covered financial institutions and voluntary reporters to maintain, report, and publicly disclose information about small business lending. This rule aims to provide a comprehensive market view and support data-driven decision-making through the collection of data on small businesses. However, with the Chevron ruling overturned, courts may interpret and potentially invalidate this regulation, which has faced ongoing challenges from the banking sector.

Small business lending data is crucial for building a more inclusive financial sector. Studies show that even with a strong credit profile, Black entrepreneurs are about half as likely as their white counterparts to secure full financing, and Black- and Latino-owned businesses are less than half as likely as white-owned firms to be fully approved for loan applications. In-depth data collection would help the sector better identify barriers and discriminatory practices — and ultimately fix them.

Impact on Community Reinvestment Act banking regulation

The end of the Chevron deference also jeopardizes the recent updates made to the Community Reinvestment Act (CRA), which is a law that passed almost 50 years ago, designed to encourage financial institutions to help meet the credit needs of the communities they operate in, including low and middle-income neighborhoods. While banking regulators have spent years trying to jointly agree on updating the CRA, the new rule has been challenged in court by bank trade associations. Although the updated rule is not perfect — with missed opportunities to include racial equity — there is a critical need to modernize CRA, especially with the ever-changing landscape of Internet banking.

The bank trade association's lawsuit against the new CRA claims that some of the revised regulatory provisions contradict the original statutes that established the act. The overturning of the Chevron doctrine will make it easier to delay or even overturn federal rules like this that banks don’t want to follow. Perhaps it’s time for Congress to take action and overhaul CRA, as a whole, with changes to those statutes that are in conflict.

Beneficial State Bank’s efforts to fight financial inequities

Beneficial State Bank is committed to addressing financial inequities through its lending practices, including actively lending to women and entrepreneurs of color, regardless of challenges that may emerge against CFPB’s common sense reforms. By the end of 2022, Beneficial State Bank had $90 million in loans outstanding to women-owned businesses, almost $82 million to businesses owned by people of color, and about $21 million to businesses owned by women of color. Additionally, Beneficial State Foundation, a nonprofit that works to advance financial justice and serves as the bank's majority shareholder, continues to reimagine credit underwriting standards through its Underwriting for Racial Justice (URJ) national working group. Beneficial State Bank is proud to participate in URJ’s Lender Pilot Program, through which lenders are collaborating nationally to increase funding for underserved business owners. This is all part of our mission to support people and communities.

Financial institutions wield significant power to influence communities and people’s lives, for better or for worse. We must work with policymakers and advocates to support regulatory frameworks that protect consumers and small businesses and weed out unjust practices that make our financial system less fair and ultimately less productive. Beneficial State Bank is dedicated to advocating for policies and regulations that protect small businesses and promote equitable access to financial resources.