We have previously highlighted the Consumer Financial Protection Bureau and the Trump Administration’s effort–bolstered by Elon Musk, back when they were buddies–to gut it. It is, nevertheless, difficult to appreciate how sweeping those efforts have been and how much uncertainty has resulted. Since taking office on January 20, the administration has conducted a massive campaign to dismantle the CFPB, which was created after the 2008 financial crisis to protect consumers from fraud, abuse, and other predatory financial practices. The result is inconsistency and uncertainty.
It took a couple of weeks for the new president to fire Rohit Chopra, the former director of the CFPB. He first named Scott Bessent, the treasury secretary, as the acting director, but he quickly replaced him with Russell Vought, the director of the Office of Management and Budget. A permanent director was later nominated, only to be withdrawn, so Russell Vought remains the acting director.
The Bureau quickly moved to eliminate about 1,500 of its roughly 1,700 employees, cutting its staff by almost 90%. That move remains in legal limbo before the D.C. Circuit Court of Appeals, and for now, the layoffs have been stayed pending appeal. One way to eliminate an agency’s operations and functionality is to fire most of its employees. Another way is to cut its funding. As discussed here last year and upheld by the Supreme Court, the CFPB is funded from a portion of the FDIC’s operating expenses. The current CFPB budget is 12% of the FDIC’s operating expenses, but under the budget bill recently passed by the House of Representatives, that funding would be reduced to 5%.
By depleting its workforce and massively reducing its funding, the administration will achieve the goal many in the financial sector have shared since the CFPB’s inception. This is also consistent with Project 2025, in which Acting Director Russell Vought played a major role. Beyond staffing and funding, the CFPB is also actively changing its position in many areas of enforcement. For example, in active litigation, it has proposed a joint consent judgment that eliminates its medical debt rule, which broadly prohibited the reporting and collection of medical debt.
In May, the CFPB proposed to rescind nearly 70 guidance documents that it claims exceed its statutory authority. This included guidance regarding the Fair Credit Reporting Act, the Truth in Lending Act (Reg Z), the Fair Debt Collection Practices Act, Buy Now, Pay Later products, and much more. By rescinding federal guidance, the CFPB is attempting to shift the responsibility, if any, of a consumer protection watchdog, to the states. While enforcement could come from the FTC, the goal is to shift it to state attorneys general.
The proposed rescissions included the non-bank registry rule, which was a rule finalized in July 2024 requiring debt collectors, mortgage lenders, payday and other non-bank lenders to report state or federal regulatory actions against them. In light of its attempt to shift responsibility to the states, it also proposes to rescind State Official Notification Requirements, which require 10 days’ notice from state Attorneys General to the CFPB regarding certain enforcement under Dodd-Frank. It now argues this is duplicative, and its elimination will help expedite the process.
Two rules discussed here before–the Open Banking Rule and the Small Business Lending Rule–are also on the chopping block. Legislation that has passed and been signed into law, through a joint resolution of disapproval, affects the Bureau’s regulation of general use payment apps, including digital wallets, fund transfer apps, person-to-person apps, etc. and its overdraft lending rule, which would have limited most overdraft fees to $5.
As it shifts and eliminates its resources, the CFPB claims to focus on tangible harms to consumers. Conveniently, this could also reduce its role in the regulation of Elon Musk’s new X financial platform, which now may face less scrutiny. This all aligns with the goals of Project 2025, to reduce the size of government and to eliminate regulatory burdens.
There are more items on the CFPB’s list than we have room for here. However, the point is that the CFPB of the future will likely be a much slimmer, less expensive, and less consumer-friendly agency that gives the benefit of the doubt to corporations and banks. The subject of 15 + years of debate is whether CFPB supervision and regulation is necessary to protect consumers, or if it is overbearing, unnecessary, often duplicative, and indistinguishable from other regulations, both state and federal. Like so many of the administration’s initial attempts, many of these efforts remain tied up in litigation. It is safe to assume, however, that even if the courts do not allow such massive layoffs, and even if the huge reduction in funding does not become law, its role will be drastically reduced for the next 3 ½ years.
The only certain thing right now is uncertainty. Much like the effect of tariffs on the stock market, the effect of all this change leads to uncertainty for banks, non-bank lenders, and consumers. At Dalton & Tomich, we have extensive experience representing banks and other financial institutions. Rely on us to be the steady hand to guide you through these uncertain times. Reach out to us today to analyze your regulatory compliance issues and best practices.
