A swift reversal of policy at the Consumer Financial Protection Bureau has raised questions about the future of the agency's willingness to level the playing field between large and small banks as well as their nonbank competitors.
Within 24 hours of being put at the helm of the bureau, Acting Director Russell Vought instructed all CFPB employees to
The pause on new policymaking and implementation — something that other bank regulators did voluntarily after last fall's presidential election — was a welcomed development for banks of all sizes. But Vought's move to suspend all enforcement activity has raised concerns that the new administration's efforts to curb regulatory overreach could go too far.
In a statement to American Banker, Rebeca Romero Rainey, president of the Independent Community Bankers of America, said policymakers should pursue a "more balanced regulatory framework" at the CFPB without walking away from the agency's statutory mandates.
"Community banks have always prioritized strong consumer protections, equal access to credit, and relationship-based banking," Romero Rainey said. "While we share concerns about the structure and operations of the CFPB, any changes to consumer financial oversight must ensure that responsible financial institutions — particularly community banks — are not unduly burdened by regulations primarily intended to ensure megabanks and nonbank actors don't push the system toward another crisis."
The CFPB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to consolidate the oversight of fair lending and transparency requirements for banks with more than $10 billion in assets and certain other financial entities under a single entity.
Prior to that, federal banking agencies were individually tasked with enforcing statutes such as the Equal Credit Opportunity Act and Truth in Lending Act against the institutions they supervised. But, after subprime mortgage lending and other risky practices contributed to the global financial crisis, lawmakers in Washington decided a designated agency was warranted.
The Federal Reserve Board, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency all have their own consumer compliance groups that can enforce consumer compliance laws against banks on both sides of the $10 billion threshold — though their exam teams are only focused on smaller banks. Likewise, state attorneys general can enforce anti-discrimination laws and state banking regulators monitor both banks and nonbanks for consumer protection issues.
But taking the CFPB out of the picture indefinitely raises the prospect of oversight gaps arising, said Adam Rust, director of financial services for the advocacy group Consumer Federation of America.
"Congress transferred authority for these laws to the CFPB, they don't go back [to banking agencies] by default the moment that activities are suspended," Rust said. "Right now, we don't have a federal regulator that's minding for anti-discrimination laws. This is not a small event."
Thomas Hoenig, former vice chair of the FDIC and former president of the Federal Reserve Bank of Kansas City, said much remains to be seen about the CFPB's shutdown, noting that if it does prove to be a temporary pause to assess the agency's policies and priorities, it could be justified.
Hoenig said the burden of consumer protection standards weigh heaviest on the smallest banks. Because of this, he said a reformed approach by the CFPB that lightens the burden on those institutions would be appropriate. But because the smallest banks will continue to be subject to the same oversight by the Fed, FDIC and OCC, simply shutting down the agency will tilt the regulatory landscape further in favor larger banks and nonbanks.
"If it's a pause to assess, that's perfectly acceptable," he said. "If you shut the whole thing down and don't substitute something else, you probably will get a backlash at some point."
The Trump administration cannot singlehandedly shutter the CFPB; doing so would require an act of Congress. The agency's employees are also entitled to federal job protections, so they cannot be summarily dismissed. Even Vought's call to cut off all funding to the bureau could be subject to legal challenge.
Even so, a prolonged shutdown could have consequences. Rust said hamstringing the CFPB could result in a brain drain that hinders its long-term capabilities.
"There are a lot of subject matter experts in the agency that are not easily replaced, especially now that they're working on artificial intelligence and Big Tech," he said. "A lot of those individuals could earn a lot more money in the private sector. They took a job like this for job security, but that's all out the window right now."
David Zaring, a professor of legal studies and business ethics at the University of Pennsylvania's Wharton School, said any sustained pullback by the CFPB will change the balance of the regulatory landscape, with the biggest beneficiary being financial institutions outside the bank regulatory perimeter.
"If the CFPB gets called off the watch, that's going to be very good for nonbank competitors to banks," Zaring said. "That was one aspect of financial regulation that the banks were reasonably happy to see the CFPB take on. They feel like their competitors are under regulated and the CFPB was asserting some consumer protection responsibilities over them. Not clear what would happen to those efforts if the CFPB essentially goes away."
