Unintended Consequences: How Will CFPB Hiatus Impact New Product Development?
With staff gone or "paused" at the Consumer Financial Protection Bureau, large banks are unable to consult with them on new product or service ideas. A bigger issue: Whether major regulations, frozen in place, will be a brake on innovation, or worse.
By Steve Cocheo, Senior Executive Editor at The Financial Brand
While the future of the Consumer Financial Protection Bureau, if any, continues to play out in Washington, the banking industry still has businesses to run. Central to today’s banking business is the almost continuous need to develop new products and to move ahead with financial innovation. Sitting still isn’t an option.
Historically, bankers have tended to inch carefully forward before they let something touch the public, accustomed as they are to heavy government regulation. This process includes consultation with regulators to make sure an idea isn’t heading straight for a roadblock.
Product design is an especially key concern for larger institutions. Beyond regulatory involvement, involving the bank’s compliance function early and often has been standard practice
The Biden CFPB killed a process CFPB once offered for "no action" letters that offered some assurance for new products, though it was little used. (Specifically, the program, terminated in 2022, advised recipients of the letters "that the agency would not make supervisory findings or bring a supervisory or enforcement action against the company with respect to certain matters.") In early January 2025, CFPB’s now ex-leadership announced a new no-action letter policy that went into immediate effect — at least in theory.
The status of that new program is uncertain, like much else right now.
Time to Talk to Your Lawyers
Alan Kaplinsky, senior counsel and former chairman of the consumer financial services group at Ballard Spahr LLP, says clients have already been asking about new ideas in their development pipelines and wondering how to get some confirmation from CFPB that what they are considering fully complies with existing law and rules.
"My answer is ‘No, you can’t do that right now.’ You’re going to have to rely on your lawyers," he says. "We give them the best advice we can based on how we interpret the law, which isn’t necessarily the way that the old CFPB interpreted the law."
Kaplinsky believes the new CFPB, once it is reconstituted — he doesn’t believe it will be eliminated — will be more receptive to new technologies and new products.
One of the biggest challenges remains determining if any new idea could potentially be unfair, deceptive or abusive, issues CFPB pursued but never put into an explicit regulation. (One of the major criticisms of CFPB, especially under the leadership of recently fired director Rohit Chopra, was that "regulation" was orchestrated through guidance documents and other issuances not subject to established public comment and development processes.)
"That’s a judgment call, but they have had to make those judgments before and they still have to make those judgments," says David Silberman. 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.
While the new CFPB and other regulators may have a more giving viewpoint on such matters, he says the potential for expanded action at the state level, as described in our companion article, suggests that their judgment criteria ought not to change.
Will Key Regulations Become Orphans?
But there’s a wrinkle in all this, depending on how things play out. Silberman notes that were CFPB to die, absent legislative change, the regulations it is responsible for administering would suddenly be orphaned. There would be impact on innovation and product development in general.
"One possible outcome here is that the CFPB goes away, you freeze existing law and existing regulation in place, and that has one of two possible effects, maybe both," says Silberman.
On one hand, newcomers like buy now, pay later firms could have free rein to do what they want, while banks continue to be explicitly regulated. On the other hand, absent the ability to craft tailored regulations, a "straitjacket that doesn’t really fit a new product very well" could be forced onto it. Such a development could stymie innovation, Silberman suggests.
The issue of product development and innovation will heat up as issues from beyond traditional banking get folded into the mix. The Trump administration has made its interest in cryptocurrency and other digital assets very clear. Meanwhile, whether the CFPB’s regulatory grabs for buy now, pay later companies and major tech companies that provide wallets remain in place, is a big question.
Already, Travis Hill, acting chairman of the Federal Deposit Insurance Corp., issued a list of priorities in January. Here’s a key paragraph from the document:
"Adopt a more open-minded approach to innovation and technology adoption, including (1) a more transparent approach to fintech partnerships and to digital assets and tokenization, and (2) engagement to address growing technology costs for community banks."
