A Terrible, Horrible, No-Good, Very Bad Day for Payday Lenders at the Supreme Court

For a recap of today’s oral arguments in CFPB v. CFSA – the Supreme Court’s supremely important case for consumers, good government and financial stability, read the headlines. Sometimes, that’s all it takes.

(Headlines in Vox, Talking Points Memo, NBC News, The Associated Press, and The New York Times.) 

Here at Americans for Financial Reform, we summed the oral arguments up without a reference to a beloved children’s book, but pretty close: “A Terrible Day in Court for the Payday Lending Lobby.” Trump’s former Solicitor General Francisco Noel, the payday lenders’ counsel, buckled under interrogation by justices from across the political spectrum who heard arguments counter to text, history – and without any limiting principle. Said AFR’s Lisa Donner:

“The payday lobby faced many skeptical Justices today as they tried to argue Congress is not able to appropriate funding as it sees fit. The reality: Many times in our history, Congress has chosen to fund federal agencies, like the CFPB and others, separate from annual appropriations. Predatory payday lenders and Wall Street lobbyists can’t change what the constitution says or nearly 250 years of practice and precedent just because they don’t want to abide by rules that protect all of us.”

At a media briefing hosted by AFR, the Constitutional Accountability Center (Brianne Gorod, chief counsel) and Democracy Forward (senior counsel Rachel Fried) and University of Utah professor Chris Peterson shortly after oral arguments, legal experts concurred that the arguments “fell flat.” Peterson added:

“The payday loan companies were unable to identify any manageable standard or principle to limit this attack to only the CFPB. All of the regulations, audits, and law enforcement actions of the Federal Reserve, the FDIC, the National Credit Union Administration as well as Social Security and Medicare are going to be challenged next in a mud slide of cases if the Roberts Court strikes down CFPB funding.”

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FINANCIAL STABILITY: MonPol and FinReg
CONSUMER: Americans Like CFPB – Pressure on SCOTUS – Future Industry Litigation
CAPITAL MARKETS: SEC Charges Firms on Records – SPACs and SPARCs
PRIVATE MARKETS: Leveraged Lending Risks – Global Probe of Non-banks – Antitrust – Private Funds Rules – Pensions “Cold” on PE – Other Private Markets News
CRYPTO: Ether ETF Debuts – NFTs and the Law
HOUSING: Black Children and Eviction
CLIMATE AND FINANCE: Household Finances and Climate Change

Feedback? Reach us at afrnews@ourfinancialsecurity.org

FINANCIAL STABILITY

MonPol and FinReg.

Fed Vice Chair Barr thoughtfully reminded us in a speech that monetary policy is a “blunt tool” and that robust financial regulation is essential. “Correctly calibrating monetary policy to target a financial vulnerability specific to one part of the financial system is likely not possible. Moreover, a monetary policy response, even to a broad-based search for yield, might require an increase in rates so large that it causes broad-based economic harm.”

CONSUMER 

Americans Like CFPB.

A majority of Supreme Court justices don’t hate the CFPB enough to ignore centuries of precedent and invalidate its funding mechanism (see above). Also, large majorities of American voters – across party, no less – approve of the CFPB and its work. That’s according to a brand-new poll commissioned by Americans for Financial Reform and the Center for Responsible Lending. Woot! Read the full polling memo from the bipartisan duo of Lake Research and Chesapeake Beach Consulting.

Pressure on SCOTUS.

Carter administration official Simon Lazarus writes approvingly in The New Republic of liberal pressure campaigns on the Roberts Supreme Court, still quite radical – even if it rejects the payday lender argument. He notes that the last Scotus term resulted in some unexpected victories in the previous term: 

Justices Brett Kavanaugh, Amy Coney Barrett, Neil Gorsuch, and Samuel Alito, and Chief Justice John Roberts hedged their support for some of these surprisingly liberal results, in ways that could foster a return to their pre-2022 hard-right form. To bar against this possibility, liberal leaders, especially liberal political leaders, need to stick with what’s been working and keep up the lines of attack—transparent partisanship, blatant disregard for precedent, legal text, and infidelity to Framers’ “original” design—that seem to have dented the right-wing majority’s lockstep cohesion.

Yes.

Future Industry Litigation.

Law professor Steve Vladeck highlights the smackdown that the Fifth Circuit got from even conservative justices today, a potent warning for industry lobbies that see the New Orleans-based court  as an easy way to a judicial victory. “Whatever else one thinks of the Chief Justice and Justices Kavanaugh & Barrett, there is meaningful daylight between them and the Fifth Circuit,” he writes. Remember, the private funds industry made a beeline for this circuit the moment the SEC approved new disclosure rules.

CAPITAL MARKETS

SEC Charges Firms on Records

The SEC has charged 10 securities firms with having conducted "pervasive and longstanding off-channel communications," in violation of rules requiring they keep communications among employees on official media and always keep records. They will pay $79 million in penalties.

SPACs and SPARCs

For hedge funder Bill Ackman, SPACs are now SPARCs and if you want to understand more than that, read the Reuters piece announcing his plan. Ackman has said he would consider a transaction with the social media network formerly known as Twitter.

PRIVATE MARKETS

Leveraged Lending Risks.

The credit rating agency Moody’s warns of “systemic risk” in leveraged loans, as banks agree to lend to finance riskier, more dubious leveraged buyouts in response to greater competition from the private credit funds sector. It’s a “race to the bottom,” says Moody’s. “This will cause pricing, terms and credit quality to erode, fuelling systemic risk.”

Global Probe of Non-Banks

The Financial Stability Board, the global guardian of – yes, financial stability – is turning its full attention to private markets, specifically the borrowing by hedge funds and private equity. It hopes to announce recommendations next year, and such steps could include higher collateral requirements for borrowing.

Antitrust.

The FTC intends to take action against the private equity firms engaging in “roll-up” schemes, in which such firms systematically buy up the smallest companies in a given industry to combine into a larger, more monopolistic one. The American Investment Council, which lobbies on behalf of private equity firms, railed against what it calls “fundamentally irrational” enforcement. Reminder: the outsized consolidation proffered by roll-ups often “harm[s] consumers, workers, and communities” by reducing market competition. In Texas, per the FTC, a statewide roll-up scheme allowed private equity to drive up the price of anesthesiology services.

Private Funds Rules.

A Bloomberg op-ed suggests that the SEC’s new rules are baseless and that investors whose public pension dollars are funneled into private fund investments don’t “have a right to access them on equal terms.” Those investors include this nation’s teachers, electricians, autoworkers and other working-class Americans. FT, meanwhile, believes officials do need to fight this opacity in order to better scrutinize valuations and understand the “hidden risks.” AFR and numerous other advocacy organizations stand behind the SEC’s slate of rules, which seeks to stem the “massive transfer of wealth from savers and retirees to private fund executives,” in the words of AFR’s Andrew Park. 

Pensions “Cold” on PE

Public pensions’ interest in private investment has tapered, as “long-term commitments” that lock up funds for a decade become less appealing in a high-rate environment. PE firms’ asset prices are expected to be lower too, with climbing debt prices and less M&A activity. 

Other Private Markets News.

• Investors with money in private equity have a new way to go into debt: borrowing against their stakes, sometimes at double-digit interest rates, until the market for their holdings turns around, per Bloomberg. Who would lend to them? Why, 17Capital, Apollo Global and Ares Management Corp., who see a growing market targeting investors in the PE funds.

• Carlyle Group Inc. is retreating from bets on US consumer brands as the firm reorganizes its private equity business in the country around core sectors such as financial services and technology, Bloomberg reports.

• Wells Fargo dumped $2 billion it had given to Carlyle to manage. “Momentum is building in the little-known market for trading stakes in private-credit funds,” Bloomberg reports. 

CRYPTO

Ether ETF Debuts.

“In the latest landmark moment for cryptocurrency ETF believers, a pack of funds tied to futures on ether, the second largest digital asset, debuted Monday. The first day of trading, however, was less than stellar,” reports Politico.

NFTs and the Law

“Owning an NFT does not mean much in the eyes of property law,” according to The Regulatory Review, in an article entitled “Decrypting Deception in the NFT Market.” The law does not confer any rights to the underlying assets” of an NFT. “When advertising NFTs, however, minting platforms often conflate the tokens with their underlying assets,” the author writes.

HOUSING

Black Children and Eviction.

More proof that the most vulnerable feel the brunt of financial distress. “The Americans most at risk of eviction are babies and toddlers, according to new data that provides the fullest demographic picture yet of who lives in rental households facing eviction nationwide,” NYT reports. Children under 5 years are the largest age group in households that have faced an eviction filing. The risk is particularly acute for Black children and their mothers: “about a quarter of Black children under 5 in rental homes live in a household facing an eviction filing” in a given year. 

CLIMATE and FINANCE

Household Finances and Climate Change.

The Treasury found that over half of U.S. counties are threatened by at least one of three “climate hazards” – flooding, wildfire or extreme heat – and that a fifth of all counties face “both elevated vulnerability and elevated future exposure” to those hazards, in a new report examining the impact of climate change on household finances. Households’ financial situations will strain as climate change intensifies extreme weather events. Effects include: reduced earning and benefits from employment, increased spending on transportation, additional healthcare costs, higher utility costs, and destruction of property. Climate hazards will also reduce access to financial products and services like credit, insurance and payments.