Banks and other financial institutions across the country are carefully monitoring the Consumer Financial Protection Bureau's appeal to the U.S. Supreme Court as the fates of the agency's funding, guidance and enforcement actions hang in the balance.

In mid-November, the CFPB asked the nation's highest court to take its case regarding a ruling from a lower court that its funding structure is unconstitutional. If upheld, the decision of the U.S. 5th Circuit Court of Appeals could wipe out the current mechanism by which the agency gets its appropriations through the Federal Reserve. It also could have the impact of invalidating all of the enforcement actions and guidance the CFPB has undertaken since its inception under the Dodd-Frank Act.

"It would call into question everything the agency has done in the past, as well as its ability to continue operating," John Coleman, a partner and financial services expert at law firm Buckley LLP, said in written comments.

Some parts of the financial industry are anxious to see the CFPB's guidance and compliance structure upheld, while others would be relieved to face less regulatory scrutiny from the agency that has cracked down on companies over the past year, industry experts and former agency officials said. In the meantime, some companies have already used the lower court ruling to push back against lawsuits from the CFPB.

With so much at stake, attorneys said it is highly likely that the Supreme Court will take the case, and potentially soon.

"It's hard to imagine that the Supreme Court would not take up the case and hear it this term," Ori Lev, a partner and financial services specialist at law firm Mayer Brown, told S&P Global Market Intelligence. "The Fifth Circuit's decision essentially invalidated an entire federal agency."

Bringing the agency's guidance into question

One key factor that could play into the willingness of the higher court to take on the case expeditiously is the impact it would have on the CFPB rules and guidance that financial companies have to follow, attorneys said.

The 5th Circuit Court's ruling stands to invalidate the agency's prior guidance and enforcement, and some industries may feel less eager for that to happen than others.

In its appeal, the CFPB pointed to industries where the 5th Circuit ruling could have an immediate effect, such as the mortgage industry. If CFPB regulations were vacated in this area, "mortgage lenders would have to immediately modify the disclosures they give millions of consumers each year, and borrowers could seek to rescind certain mortgage transactions that had relied on regulatory disclosure exceptions," the agency wrote.

Mortgage lenders "have said in the past that they didn't want past actions of the CFPB to be undone. That's an example of entities that were relying on a bureau regulation," said Chris Willis, a partner at Troutman Pepper.

However, the CFPB has faced opposition from other financial services sectors in the recent past — particularly banks — regarding rules that they feel carry significant compliance burdens. As a result, some companies may welcome pushback on such rules, Willis said.

Companies using decision to their advantage

As the financial industry waits to see whether the Supreme Court will take the case, a growing number of targets of CFPB lawsuits are seeking dismissal of their cases based on the 5th Circuit decision.

In its Nov. 14 appeal, the CFPB pointed to five enforcement lawsuits where companies are already seeking dismissal or similar relief based on the ruling, including two major financial services companies: TransUnion and MoneyGram International Inc.

The CFPB expects those types of challenges "to multiply in the weeks and months to come, and will presumably be filed in the Fifth Circuit whenever possible. Those legal consequences have major practical effects.

"The CFPB's critical work administering and enforcing consumer financial protection laws will be frustrated," the agency said.

However, "not everybody can sue in the Fifth Circuit," and the decision of that court "doesn't govern other circuits," said Jonathan Ellis, co-chair of the Appeals and Issues Team at McGuireWoods.

While more companies are expected to use the 5th Circuit Court's decision as a tool to try to escape CFPB scrutiny, one attorney warned against doing so.

"Such an aggressive posture will likely sour the relationship between the CFPB staff and the target, which could influence how the CFPB pursues its inquiry," Anthony DiResta, co-chair of the Consumer Protection Defense and Compliance Team at law firm Holland & Knight, said in an email to Market Intelligence.

The Supreme Court's decision

While it remains to be seen whether the Supreme Court will rule on the issue, "there's going to be a state of uncertainty," said Eamonn Moran, a former CFPB official and now senior counsel at law firm Norton Rose Fulbright.

For the time being, lower courts may be less inclined to accept the 5th Circuit's ruling as a factor in their own decision-making processes, Buckley's Coleman said. "Especially if the Supreme Court agrees to hear the case, lower courts are likely to take a wait-and-see approach," he said.

DiResta says there is a "strong likelihood" the highest court will agree with the 5th Circuit Court — either through not taking on the case or taking it on and upholding the lower court's decision to make it "the law of the land for all the federal courts."

"At the Court, the majority of the Justices are critical of agencies abuse of their powers granted by Congress; and they do not want an 'administrative state' to govern what should be the job of the legislative branch," he wrote.

But other experts believe the Supreme Court is unlikely to side with the lower court given all that hangs on the decision.

"It would be extraordinary, which may be one reason the Supreme Court will look for a different outcome," Coleman said.