What Should You Do About the Turmoil at the CFPB? The Short Answer is: Nothing
Exactly what the Consumer Financial Protection Bureau will look like — if it survives — may well alter the competitive balance between big and small banks. But in the meantime, there are more questions than answers and a state-level wrinkle could create new challenges.
By Steve Cocheo, Senior Executive Editor at The Financial Brand
As the swirling controversy around the Consumer Financial Protection Bureau continues, banks and other companies covered by bureau supervision and regulation are asking: What do we do now?
The short-answer consensus from legal experts: Stick to your compliance programs and continue to obey the federal laws that apply to your organization. The CFPB isn’t the only risk institutions face.
The list of CFPB-related developments continues to grow. The longtime Biden CFPB director, Rohit Chopra, was fired. He was replaced, for a blink or two, by Treasury Secretary Scott Bessent, who stepped aside as acting director so Russell Vought, the newly confirmed head of the Office of Management and Budget, could take over. Most bureau activity was shut down and the Federal Reserve, source of CFPB’s funding, was told by Vought not to send the next check. Top officials were placed on administrative leave, prompting resignations. Terminations of staff continue. Jonathan McKernan, a Republican member of the FDIC’s board, resigned to make room for Acting Comptroller Rodney Hood to serve on the insurance agency’s board, with attorney Jonathan Gould nominated to be the next Comptroller of the Currency, with McKernan being nominated to head CFPB. More to come, as they say.
Somewhere in the mix, Elon Musk posted a tombstone emoji to predict the death of CFPB. Meanwhile, some media outlets are linking his interest in killing the bureau to his ambitions to turn X, the former Twitter, into a payments platform. (See our recent coverage.)
Meanwhile, the speculation about the bureau’s future continues, with arguments for closure and for continued operations in some form competing for attention.
The unprecedented pause of the bureau may have been prompted by the actions of Rohit Chopra and his staff in their closing days. CFPB was pushing reports, proposals, bulletins and circulars out the door until the last minute, virtually inviting a decisive smackdown instead of a more measured response.
Whatever happens next, the longer term answer to the question posed above — what do institutions do amid the turmoil — isn’t going to be simple or straightforward. It’s not just a matter of worrying about examinations. How to go about product design, which competitors will or won’t still be subject to federal regulation and more, are all at stake.
And it’s likely that even if a subdued CFPB remains in place, with a mandate for "kinder, gentler" supervision, the goings on in Washington will drive legislative debate on Capitol Hill. Elizabeth Warren, ranking minority member of the Senate Banking Committee, created and spearheaded the CFPB, and she won’t quietly watch its "defanging" or even closure. She and the ranking minority member of the House Financial Services Committee, Maxine Waters, have already ramped up opposition.
But beyond all that, financial providers, especially banks, will likely see at least "blue states'" attorneys general and state banking regulators attempt to fill in the perceived gap in enforcement.
Rohit Chopra left behind a little present for those so inclined, in the form of guidance, complete with legal citations, for states that want to emulate the CFPB. In a way, it’s a capsule of the Biden CFPB’s legacy.
"What Should We Be Doing?"
"If I were a bank or other organization that has long been subject to CFPB jurisdiction, I would be careful about assuming this is a hall pass," says Michele Alt, partner at Klaros Group and a 22-year veteran of the Comptroller of the Currency’s legal wing.
Beyond the state-level issues mentioned earlier, and in spite of a social media fever that the handcuffs are off, there is the market to consider, says Alt.
Rampant misbehavior "would be very unpopular with customers," says Alt. "Just because there might not be a regulatory cop on the beat at the moment, remember that consumers don’t like what they see as abusive or unfair practices, and that they generally like the protections afforded by the consumer financial protection laws that the CFPB has jurisdiction to enforce."
Here’s what visitors to cfpb.gov see these days, though it’s more a bit of attitude right now. Many sections of the site remain functional, at least as of Feb. 13.
This supervisory jurisdiction applies to banks over $10 billion in assets, as well as other nonbank providers that are subject to direct CFPB supervision. In the wake of the Dodd-Frank Act that created it, CFPB has been responsible for maintaining and updating a key group of consumer financial protection regulations that also apply to other institutions not under direct CFPB supervision. (Much of this moved over from the Federal Reserve.)
The paradox here is that the $10 billion threshold set up to provide some regulatory relief for smaller institutions, leaving their consumer supervision with the traditional, prudential regulators, for the time being has left them still subject to the rules.
In the absence of CFPB supervision and examination, it’s the over $10 billion set that is uncovered, points out attorney David Silberman in an interview. Silberman, a lecturer at Yale Law School and senior advisor to the Center for Responsible Lending, spent over nine years at CFPB, most of it as associate director for research, markets and regulation. (Silberman makes a detailed case concerning the partial "regulatory vacuum" in a recent blog post.)
But Silberman thinks the larger institutions should also continue to comply as if nothing had changed.
"The substantive laws haven’t changed at all," says Silberman. "I would think that they would want to, and I would hope they would choose to, continue business as usual in that regard, even though their risk of being sued has at least temporarily gone down — maybe more than temporarily. But it shouldn’t affect their desire to be compliant with the law."
From the archive: CFPB Proposal Would Set Up Federal Exams for Nonbank Consumer Digital Payment Players
What About My Pending Business with CFPB?
So far, what’s been discussed here are concepts and principles. On another level, institutions that have had issues with CFPB may be thinking about the status of those matters when most bureau activities have been paused, including litigation and investigations.
During the pause imposed on most CFPB action, "it’s now ‘pencils down’," says Patty Covington, partner & co-chair of automotive and personal property finance practice group at Hudson Cook, LLP. What comes next, and when, is unclear.
Alan Kaplinsky, senior counsel and former chairman of the consumer financial services group at Ballard Spahr LLP, says some of the firm’s clients are involved in actions with CFPB.
"My advice to them is that that’s all on ice," says Kaplinsky. "It’s all been paused, so they can take a breath and at least right now not worry that much about litigation." In time, new leadership will address cases where the issues don’t concern the new administration or where they feel the Biden CFPB was pushing the envelope too far.
In the event, Kaplinsky thinks many pending lawsuits and investigations will simply be dropped.
"It’s going to be a lot more dramatic than what we experienced back during Trump 1.0, where not too many investigations and lawsuits got dropped," he recalls. "In fact, very few did. They got settled for modest amounts of money. But this time I’m more optimistic that things are going to get resolved more favorably for the industry."
But that will take time to materialize. Even if its doors were open, he says, "there’s so much turmoil right now that a bank wouldn’t know who to talk to. It’ll take a while for the dust to settle."
All this will take some getting used to, and some patience. "Many of our clients don’t like the CFPB, but they also don’t like chaos either, and not knowing who they can communicate with," says Kaplinsky. "But I think things are going to remain very unsettled at CFPB for a lengthy period — certainly longer than people would like."
There’s a slew of rulemaking that got pushed out the door in 2024, even after the election, that will be up for review. Kaplinsky says he’s advising clients not to worry about deadlines contained in those regulations. He believes that CFPB will eventually either change the effective dates or the compliance dates of the rules, or change their substance — or just kill them.
The latter won’t always be possible, however, if they are mandated by legislation. Examples include the 1071 small business data collection rules and the 1033 open banking regulation. Some matters will be addressed administratively, others potentially through the Congressional Review Act, Kaplinsky believes.
Silberman and others don’t expect the bureau to be killed, though it is already clearly getting a revamp.
The current state of affairs is hazy, to say the least.
"My hope is that it shocks everybody enough to get people to the table to say, ‘All right, this institution has become way too political’," says Patty Covington. "With each administration, it can go one way or another way, and businesses don’t want that. They want what’s predictable, what’s steady. They want to know the rules of the game, and to essentially be in their lane complying."
Covington says that ideally Congress will roll up its sleeves and replace the bureau’s single director model with a commission with membership from both parties.
"That will give a little more balance, more structure, more durability to the leadership of the CFPB," says Covington. "It would still give the party in power the ability to have their policies be priorities. But it wouldn’t be quite so dramatic and traumatic for the industry."
Read more: How Affirm, PayPal and Now Musk’s X Money Will Jockey for Gen Z’s Money in 2025
The Risk of State Attorneys General Going After Banks, CFPB-Style
Those who approved of the CFPB under Chopra may have wondered how to bottle the spirit of that version of the bureau. In mid-January, the bureau did just that. The move may facilitate efforts by state governments sympathetic to the aims of Chopra’s CFPB to carry on those fights.
CFPB issued a report concerning "how states can ensure their laws and regulations meet new consumer protection challenges." Included with the 33-page report is a 363-page compendium of guidance documents the bureau used in recent years to advance its agenda. The "kit" includes model legislative text to work from, to develop state-level legislation.
Model legislation isn’t a new idea. Trade associations, interstate groups of regulators, and other bodies frequently craft such material for potential adoption. A classic example is the models developed for state-by-state adoption of changes in the Uniform Commercial Code. Blueprints for pursuing an industry have been shared among activist groups before. The publication of such a document by the outgoing leadership of a federal agency is unusual, though CFPB at times has worked with state authorities.
"It’s a roadmap, very purposefully done and very intentional," says Patty Covington. "He [Rohit Chopra] intended to publish a roadmap for states to continue the work that he started."
"The report touts much of the CFPB’s past work and rehashes old battles. It is a ‘victory lap’ taken in the shadow of a lost election," says Michele Alt. She thinks it is especially clever in that it appeals to "the interest certain state actors — presumably blue state attorneys general and departments of banking — would have in expanding their roles and profiles."
Could an issue rise to a level that party allegiances would fall by the wayside? "In a rational world the answer to that question is ‘yes’," says David Silberman. He wonders out loud if politics is so polarized currently that no Republican state attorney general would cooperate with Democrats.
A few items from the report’s table of contents section on new state-level consumer protection may stimulate bankers’ interest in downloading a copy:
- Incorporating the concept of "abusive" into state banking law.
- Creating bright-line prohibitions of banking junk fees.
- Providing strong and enforceable consumer data and privacy rights.
- Adding stronger remedies and tools for investigation and enforcement.
"State attorneys general are definitely ramping up," says Kaplinsky. "Some of it’s public, some of it’s not so public. But they are talking among themselves, networking, figuring out ways in which they’re going to be able to fill the enforcement void" now that the Chopra-era CFPB is gone.
There is also some talk of blue states creating some variation on the theme of a "mini CFPB" domiciled either in the state’s financial services regulatory agency or with the state attorney general’s office. This has happened to a limited degree in the past, a key example being the California regulator, now called the Department of Financial Protection and Innovation. The expansion, patterned after CFPB, was pushed by Gov. Gavin Newsom and adopted in 2020, during the first Trump administration.
How much state attorneys general can take any attempt to "continue the fight" will depend on what’s in question. The experts explain that state attorneys general are authorized to bring enforcement actions under the Consumer Financial Protection Act and regulations CFPB issues under the act, in regard to state-chartered banks. In regard to national banks, the state attorneys general can only enforce a regulation promulgated by the bureau and not the related statute itself. (The Consumer Financial Protection Act is Title X of the Dodd-Frank Act.)
Things can get into the weeds pretty quickly. State banking regulators have no authority over national banks.
There’s another risk that institutions may face, depending on the federal law that’s involved. Certain statutes provide for "private rights of action" that private parties such as consumers, consumerist groups, and others, can pursue directly in court.
"Absolutely, the plaintiff’s bar has not gone away," says Alan Kaplinsky. "They are interested in a lot of areas and have been taking their cues from the CFPB."
He says he advises banking clients to put mandatory arbitration clauses into contacts. "Otherwise," under current circumstances, he says, "you’re going to be a target for class-action litigation."
