Nov 29, 2018

How Supreme Court Justice Kavanaugh's appointment may affect financial institutions

After a lengthy confirmation process, Brett Kavanaugh was sworn in as a United States Supreme Court Justice on Oct. 6, 2018. Kavanaugh’s previous role as D.C. Court of Appeals Judge provided Americans with insight as to how the appointment may impact future Supreme Court decisions that involve the lending industry. Here are a few particular issues to monitor over the coming years that could affect lenders and debt buyers:

1) Limitations on the Consumer Financial Protection Bureau’s regulatory power

The Consumer Financial Protection Bureau (CFPB) is a United States governmental agency responsible for regulating banks, lenders and other financial institutions in an effort to ensure consumer protection from unfair, deceptive or abusive practices. Writing for the D.C. Court of Appeals, Justice Kavanaugh expressed skepticism towards the constitutionality of the CFPB1. His stance towards the CFPB suggests that the agency’s authority may be weakened which could ultimately lead to less lending regulations and requirements.  

2)      Limitations on interest rates debt purchasers can charge  

In 2016, the Supreme Court declined to hear Madden v. Midland, a second circuit case wherein the Court held that the National Bank Act’s preemption of state usury laws did not apply to certain debt buyers. While national banks have the right to charge interest rates by the laws of any state, Madden held that national banks cannot pass this right to non-national, third-party-debt purchasers. The ruling went against well-established precedent and should this issue resurface before the Supreme Court, Justice Kavanaugh’s conservative history suggests he may support reversing Madden and expanding the rights afforded to certain debt buyers.                                                                                            

3)      Application of the “disparate impact” rule to lending regulations

In a narrow 5-4 decision recently authored by retired Justice Anthony Kennedy, the Supreme Court held that the “disparate impact” rule, which provides a mechanism to find liability for unintentional discrimination, applied to claims brought under the Fair Housing Act.2 Based on Justice Kavanaugh’s conclusion that homeowners failed to establish a disparate impact claim against the U.S. Department of Fair Housing and Urban Development in the Greater New Orleans Fair Hous. Action Ctr. v. U.S. Dept. of Hous. & Urban Dev., several commentators have suggested that he may be against expanding disparate impact rule’s application. Should new issues cornering application of the disparate impact rule to lending-based regulations arise before the Supreme Court, Justice Kavanaugh’s replacement of Justice Kennedy could drastically affect the Court’s ultimate decision.

Chuhak & Tecson’s Banking attorneys will continue to monitor changes that impact the lending industry.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by Michael D. Leifman, Associate. 
Special thanks to Chuhak & Tecson’s law clerk Natalie Skizas for her contributions to this article.

1 PHH Corp. v. Consumer Financial Protection Bureau.

2 Texas Dept. of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc.