The Consumer Financial Protection Bureau is currently in a state of unbeing. The doors have been locked, the X account has been disabled, the workers have been barred from the building and told “please do not perform any work tasks,” and the new point of contact is Office of Management and Budget general counsel Mark Paoletta, Clarence Thomas’s best friend.
The CFPB’s union, a local of the National Treasury Employees Union, hastily filed a lawsuit on Sunday against acting director and OMB director Russell Vought, arguing that his actions “to bring the CFPB’s statutorily prescribed work to a halt violate separation of powers principles.” The complaint states that Vought’s decisions invalidate the express wishes of Congress to create a consumer protection agency, something that has not been reversed by the only legal means, through legislation.
There are likely to be other lawsuits and challenges to this dictatorial action. And there is a rally at the agency’s headquarters this afternoon. The Trump administration’s latest factually dubious statement about the CFPB shows that it is dead serious about dumping the agency in the trash.
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In the meantime, consumers are left with no cop on the beat to protect the biggest financial transactions of their lives; they may get to know about things like bank runs and illegal foreclosures all over again. That’s obviously what’s most at risk here. But many other complaints about the agency’s demise could come from an unlikely source: the banks and financial firms that CFPB was regulating.
Sources tell the Prospect that industry trade groups are alarmed at the rapid dissolution of the CFPB, which puts things in a far more uncertain state than before it was established in 2010. Even regulated industries acknowledge that CFPB contributed to the smooth functioning of markets that could easily break in its absence.
“If there’s no point person, the rules are frozen in time, it’s not good for anyone,” said one former CFPB official who now works with companies in the private sector and asked for anonymity to discuss the matter. “I’m not even talking about the consumers here. Just for the industry, it’s not a good answer.”
So far, this has mostly not been articulated by corporate groups, though this is changing. Phil Goldfeder, chief executive of the American Fintech Council, told Politico’s Morning Money, “When you tear it all down, you potentially lose what had been good regulatory policy … When operated correctly and bereft of ideological drive, the CFPB could be a valuable tool for responsible regulation.”
What counts as “responsible” regulation from industry is different than the consumer perspective. But behind the scenes, financial firms realize that America with consumer protection laws but no federal agency to manage them could be really bad for business.
ALL OF THE LAWS CFPB OVERSEES are statutory and still in place. Without the agency in charge of them operating, key activities will go dark, including activities industry needs to have done.
During the last existential crisis for CFPB—a lawsuit that attempted to render its funding mechanism unconstitutional—the Mortgage Bankers Association tried to get Congress to codify some of the CFPB’s rules into law, concerned that safe harbors and other benefits the bureau put in for responsible mortgage lenders would go away.
As I wrote at the time, “The Dodd-Frank financial reform law created an ‘ability to repay’ standard for mortgages, where companies must assess that borrowers can actually meet the payments. The CFPB’s rule gave ‘qualified’ mortgages with certain characteristics an exemption from that requirement. [Without CFPB], that exemption would go away, and all borrowers with a qualified mortgage could file legal challenges on the grounds that they were not assessed for an ability to repay.” Other rules depend on CFPB determining what counts as a “high-cost” mortgage; if it can’t, uncertainty would abound about what qualifies for specific treatment. The functioning of mortgage markets and the ability for people to get a mortgage would be thrown into question.
Adam DeSanctis, a spokesperson for the Mortgage Bankers Association, told the Prospect that the organization would “engage with OMB leadership to better understand the Acting Director’s objectives and provide recommendations on near-term needs and intermediate- and longer-term reforms.”
Subjecting banks to a patchwork of state and citizen action with no federal supervision is very uncertain.
In addition to mortgage markets, several rules have annual inflation-adjusted thresholds that define what transactions are covered; if CFPB can’t make those adjustments, the level stays the same, putting more entities under the regulations. And if there’s a crisis that requires regulators to respond in real time, a shuttered CFPB couldn’t do that. The kind of rules that CFPB modified during the pandemic could not be done by any other agency that doesn’t have its authorities.
Of course, industry would itself like many rules tweaked from their current status managed for the past few years by former director Rohit Chopra. The Consumer Bankers Association outlined its request last month, with the inherent assumption that CFPB is an important part of the regulatory structure. “Most industry stakeholders have a very long list of actions that they need the agency to take,” the former CFPB official working in the private sector said. But if there’s no rulemaking staff and policy leadership, those tweaks cannot happen.
That opens up financial firms to action under the existing rules, which could be undertaken by state attorneys general or consumer protection authorities. California has its own consumer protection regulator called the Department of Financial Protection and Innovation, for example, and other laws have a private right of action, so citizens can sue. Before he left, Chopra published a guide to states for strengthening their own consumer protections, and several have already taken action on things like junk fees.
Subjecting banks to a patchwork of state and citizen action with no federal supervision is very uncertain. “The response at the state level could serve to be more damaging than what’s happening at the federal government,” Goldfeder of the American Fintech Council told Politico. Keep in mind that “damaging” means damaging to industry in this context.
But it’s also very unbalanced. Banks with a national charter will plead exemptions from state attorneys general, who can only enforce “a regulation prescribed by the Bureau” rather than the statute itself. That would limit the reach of the states on national banks in areas where the CFPB didn’t prescribe a rule and relies on the statute instead.
Almost by definition, a bank with a national charter is bigger than one with a state charter. So this means that big banks will have greater wherewithal to escape state regulatory enforcement. Similarly, the CFPB is barred from supervising small banks with less than $10 billion in assets; those institutions are still being examined by their prudential banking regulator. This is not at all how Congress intended laws like the Truth in Lending Act, the Fair Debt Collection Practices Act, the Military Lending Act, the Electronic Fund Transfer Act, or more than two dozen others to work, where only the smallest institutions are scrutinized.
New products that enter the market, like payment apps for X devised by a certain billionaire special government employee, are not currently under the regulatory regime, either. So non-banks that want to offer uninsured bank-like accounts or payment systems are much freer to do so, also harming the only entities still being regulated, the smaller banks and depository institutions.
Elon Musk’s DOGE teams having access to CFPB proprietary data gives his nascent efforts at payment apps an even bigger advantage, since he’ll know what his competitors are up to. Sources at CFPB have told the Prospect that DOGE coders have been in the CFPB’s headquarters since last Friday, setting up shop in a conference room in the basement with the windows blacked out.
As David Silberman, CFPB’s former associate director for research, markets, and regulations, put it in an op-ed, “‘deleting’ the CFPB would tilt the regulatory playing field decidedly in favor of large depository institutions and non-depositories and against community banks and credit unions.”
Some industry groups are hopelessly conflicted here. The American Bankers Association includes both big and small banks in its membership. One part of its membership now has a major regulatory advantage over the other. The ABA did not respond to a request for comment.
But other small banks are angry. In a statement, Randell Leach, CEO of Beneficial State Bank, a community bank based in Oakland, California, said that shuttering the CFPB “pose[s] a serious risk to the financial wellbeing of everyday Americans” and “only helps predatory lenders and others who are scared of the transparency and accountability mechanisms created by the CFPB.” You could see a small bank having the ability to sue the government for this disparate treatment relative to big banks.
We should not overlook what the nation’s consumers will miss as long as CFPB is put on ice. Taking supervisors out of banks and financial institutions means that practices that definitively harm consumers will ensue. As an example, in October 2023, CFPB explained that its exams between February and August of that year directly resulted in $140 million in illegal junk fees being returned to customers. Those examination recoupments are separate from the over $21 billion CFPB has returned to victims over its history.
But consumers and bankers have been thrown into an odd alliance with this action. Consumers are left to the devices of cheaters, grifters, and thieves; bankers are damaged by falling consumer sentiment, regulatory uncertainty, and volatility.
It’s not clear what level of access bank lobbyists and trade groups have to Vought or Musk’s DOGE teams, and whether they have made the case against wholesale, illegal deletion of CFPB. But they don’t appear to be enthused by the current outcome. “I have yet to hear the affirmative case from a trade group that this is what they want,” said the former CFPB official. “They’re either saying this is what we don’t want behind the scenes, or saying let’s wait and see. Nobody is saying, ‘How fast can we fire the workers?’”
