
- Last week, Sen. Ted Cruz, R-TX, introduced legislation to defund the CFPB and President Donald Trump fired its Biden-appointed director, Rohit Chopra.
- Republicans and Democrats promise to square off in the coming weeks and months with the future of financial regulation at stake.
- Looking at the CFPB’s history highlights its accomplishments and missteps and points to the opportunities ahead.
News around one of the financial industry’s chief watchdogs, the Consumer Financial Protection Bureau (CFPB), has come fast and thick.
Last week, Sen. Ted Cruz (R-TX) reintroduced legislation to defund the agency — an initiative he first introduced in 2015. The next day, Rep. Keith Self (R-TX) followed suit with companion legislation in the House.
Those moves came a week after Andy Barr (R-KY) reintroduced the Taking Account of Bureaucrats’ Spending (TABS) Act to subject the CFPB to a traditional congressional appropriations process instead of receiving funding from the Federal Reserve as it has since its creation in 2011.
Treasury Secretary Scott Bessent assumes the acting directorship of the CFPB with a commitment to change.
And now CFPB leadership is changing. Last Friday, President Trump fired the Biden-appointed CFPB head, Rohit Chopra, and designated Treasury Secretary Scott Bessent as acting director with a mandate to overturn much of Chopra’s legacy, including rules limiting overdraft fees and banning the use of medical debt by credit-reporting agencies.
Later on Monday, Bessent ordered CFPB staffers to halt virtually all work.
“I look forward to working with the CFPB to advance President Trump’s agenda to lower costs for the American people and accelerate economic growth,” Bessent said in a statement on Monday.
The CFPB in Context
Also on Monday, Sen. Elizabeth Warren (D-MA) set the stage for opposition to the Republicans’ moves in a statement as ranking member of the Senate Banking, Housing, and Urban Affairs Committee in which she reminded consumers of the president’s pledge to cap credit card interest rates at 10%.
“He needs a strong CFPB and a strong CFPB Director to do that,” Warren said in the statement. “If President Trump and Republicans decide to cower to Wall Street billionaires and destroy the agency, they will have a fight on their hands.”
Thus, we in the subprime space find ourselves at an inflection point with respect to CFPB oversight. Warren was instrumental in the agency’s creation after the 2008 financial crisis caused widespread job losses, home foreclosures, and a sharp decline in household wealth.
The second Trump administration promises to relevel the financial playing field.
The goal was to centralize consumer protections. CFPB consolidated functions previously handled by the Federal Reserve and several executive branch agencies, including the Federal Trade Commission, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. The result brought mortgages, credit cards, and loans under a single oversight umbrella.
The Obama administration addressed perceived deficiencies in foreclosure practices by building rules around transparency and customer interactions that Republicans have decried as intrusive and counterproductive. In fact, rollbacks with respect to mortgage servicing and payday lending during the first Trump administration somewhat releveled the playing field.
What Reform Will Accomplish
Then, President Biden appointed Chopra. Republicans have consistently characterized the Biden CFPB as a threat to growth and innovation, particularly with respect to the emerging non-bank sector.
They have expressed concerns over regulatory overreach and support for increased consumer choice. Generally, they have opposed Chopra’s efforts to expand the agency’s authority into fintech and other non-bank financial services.
The outcome of these efforts in the incoming Republican Congress and at the agency under Bessent remains open. But the debate has already produced the broad contours of regulatory reform that could see many CFPB functions revert to previous agencies:
- The Federal Reserve could retain responsibility for supervising certain large financial institutions and ensuring fair practices under the Truth in Lending Act and other laws.
- The Federal Trade Commission could assume control over the government’s efforts to protect borrowers against unfair, deceptive, and abusive acts and practices. That would mean control over non-bank lenders, credit reporting agencies, and debt collectors.
- The Office of the Comptroller of the Currency (OCC) could become the landing place for consumer financial protections with respect to mortgage servicing and other lending practices at national banks and federal savings associations.
- The Federal Deposit Insurance Corporation would then take responsibility for state-chartered and community banks that don’t fall under OCC jurisdiction.
It’s also possible that parts of the CFPB portfolio could migrate out of the sphere of traditional financial regulators.
- For example, some have proposed that the Department of Housing and Urban Development assume control over the fair lending enforcement duties of the Home Mortgage Disclosure Act and other mortgage-related laws.
- State attorneys general and state regulators would also likely gain increased responsibilities, particularly over non-bank financial services such as payday lending and student loan servicing.
What’s more, the tenor of the approach undertaken in Biden’s CFPB will undoubtedly change. The majority opinion views the changes to come as a restoration of congressional oversight — and financial accountability — after a period of overreach.
The new environment will call on subprime financial professionals to respond with products that meet consumer needs while moving the economy forward.