CFPB Mass Withdrawal of Guidance Hastens Financial Deregulation

The Consumer Financial Protection Bureau’s surprise step to revoke 67 guidance materials has rocked the finance industry. While hints at deregulation had been piling up, the scale and timing of the move imply a heightened pace.

Acting Director Russ Vought has made it clear that the Bureau is undergoing a fundamental shift away from discretionary oversight.

Industry watchers believe that the withdrawn guidance provided important guardrails in legal gray areas — particularly in the rising fintech industries. With these guardrails, firms may become more vulnerable to inconsistent enforcement or legal danger.

For companies in the nonprime lending space where regulatory clarity is paramount, the rollback is both potentially relieving and uncertain.

The majority of the rescinded guidelines deal with issues most relevant to the nonprime markets, namely:

• The CFPB previously cautioned that banks should not charge several NSF fees for a single transaction. That warning is now in the past.
• Guidance that discouraged misleading disclosures regarding deposit protection, particularly from fintechs, was withdrawn.
• Earlier guidance had established the conditions under which early wage products are not considered credit. That line is now blurred.
• The CFPB interpretative position regarding BNPL transparency requirements is no more, even while use keeps increasing.
• Earlier directives that supported open banking architectures were among the directives withdrawn.

Vought asserted that the CFPB would issue guidance only where needed and where it “minimizes regulatory burden.”

He characterized the rollback as part of the effort to get the Bureau compliant with statutory powers. “This is about cleaning up the bureaucracy and letting the market work,” Vought said. “We’re not going to substitute informal opinions for actual law.”

Industry reactions have been mixed. While some fintechs embraced the deregulatory drive, seeing it as a chance to innovate unfettered by informal CFPB positions, others, whose businesses are dependent on clarity to avoid enforcement, are concerned.

The rescissions followed other deregulatory actions: The CFPB recently suspended new enforcement actions, deferred supervisory activity, and shut down its independent funding mechanism. Critics maintain that the agency is being hollowed out.

Brady Williams of Better Markets, a consumer protection watchdog, said the pullback in guidance risks encouraging “bad actors to exploit regulatory gray zones, especially in the nonprime space.”

The CFPB release indicated that some of the guidance may be reissued in future rule-making, but provided no timing. Lenders have to practice caution in the meantime.

The more the CFPB steps back, the less predictable the regulatory landscape for the nonprime lenders becomes. That can be both freeing and risky.

On the plus side, fewer shackles give more leeway in product design. On the other, the lack of direction can add greater vulnerability to state-level enforcement or potential future federal reversals.

Firms are holding back on launching new offerings until they observe how regulators interpret the void and how courts resolve the issue. Some firms are retooling their offerings, most visibly in disputed lines of business like earned wage access or overdraft fees.

In this new regime, compliance teams will need to look increasingly to internal counsel interpretations, industry best practices and trade association guidance.

Without a consistent stream of advice, establishing good faith efforts and extensive documentation will be essential to defending their practices should enforcement heat up down the line under a different administration.

Nonprime lenders, in particular, who cater to vulnerable consumers, will need to balance carefully between prudence and innovation.