What direction will McKernan take leading the CFPB?

Amanda Andrade-Rhoades

In the span of a few weeks, the Trump administration has targeted the Consumer Financial Protection Bureau for dismantling. But former Federal Deposit Insurance Corp. Director Jonathan McKernan, who was tapped by the White House to lead the bureau, faces the challenge of putting it back together again. 

The White House nominated McKernan, who served as member of the FDIC board of directors for two years, to take over for acting CFPB Director and Office of Management and Budget Director Russell Vought upon his confirmation by the Senate, which is expected to move quickly on the nomination. 

Vought has already closed the agency for now and this week fired all probationary employees at the CFPB, part of a broader effort by the administration to reduce the federal civil service workforce. Some observers were reassured by McKernan's nomination, citing his strong policy chops at the FDIC and in housing finance. He is seen as an institutionalist — but also a wildcard with a populist bent — who will hew closely to orders from the White House, on par with past CFPB directors. 

"His background suggests a real devotion to public service, which is a positive thing," said Richard Cordray, the CFPB's first permanent director. "I have faith that when he gets in there and digs into what people are doing, he will be an effective leader of that agency. He'll put his own stamp on things, but it will be his agency to lead and protect consumers."

McKernan opposes undue regulation and appears aligned with President Donald Trump on several critical areas. He opposed the FDIC's climate risk guidance and voted against the FDIC's final rule implementing the Community Reinvestment Act, citing its length and complexity.

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The big test for McKernan comes in the next few weeks during the confirmation process. He will be under pressure to respond to questions from Senate Banking Committee ranking member Elizabeth Warren, D-Mass. — who first raised the idea of creating the CFPB — and will be asked to commit to supporting the agency's statutory obligations, including enforcement, supervision and maintaining a robust response to consumer complaints. 

Under Vought, more than 70 employees, or 4% of the CFPB's 1,750-member workforce hired by the bureau in the past two years, have been fired, many of them enforcement attorneys. Vought has terminated 150 CFPB contracts, including those responsible for consumer complaints and expert witnesses who are scheduled to testify in cases moving toward trial. Lawyers claim that suggests the CFPB is planning to withdraw or drop many — if not all — legal cases still in pending litigation. 

McKernan's nomination may be an effort by the White House to take the heat off Elon Musk's  Department of Government Efficiency, which now has confidential supervisory information on banks and nonbank competitors, as well as the 10 million people who have filed complaints with the CFPB. The optics of having the world's richest man shut down an agency that protects consumers may backfire on the White House, and McKernan is seen by Republicans as a stabilizing force. 

"If McKernan's nomination signals an intent to maintain a functioning agency, the lingering question is: to what end? If the plan is outright dismantling, that's already in progress," said Jonathan Pompan, partner and chair of the consumer financial services practice group at the law firm Venable LLP. "The laws are still on the books, and enforcement continues in other arenas, which could usher in differing interpretations and inconsistent compliance expectations across jurisdictions."

Federal Reserve Chair Jerome Powell this week acknowledged as much during his semiannual testimony in the Senate Banking Committee, saying that the Fed has some "residual" consumer protection authorities but "we don't have … examination authority for the banks that the CFPB supervises."

When the CFPB was created in 2010 by the Dodd-Frank Act, Congress transferred 18 enumerated consumer protection laws from other federal agencies and transferred them to the CFPB. The bureau is required by statute to enforce, supervise and examine banks and credit unions with more than $10 billion in assets. It also oversees large nonbank mortgage companies, payday lenders, credit bureaus, digital wallets and maintains a consumer complaint database, among its 87 statutory requirements. The National Treasury Employees Union and the city of Baltimore have sued the CFPB and Vought, claiming their actions are arbitrary and capricious and therefore illegal under the Administrative Procedure Act. 

McKernan brings expertise in key areas of banking and the mortgage market and is seen as a serious policy professional with a populist bent. He worked as the right-hand man to Sen. Bob Corker, R-Tenn., on housing finance reform and later served as a senior counsel at the Federal Housing Finance Agency.

"The depth of his knowledge is unlike just about anyone I've met in Washington," said Len Wolfson, a partner at Federal Hall Policy Advisors, who served with McKernan in the first Trump administration. "Congressional staffers are famously a mile wide and an inch deep, and McKernan is a mile deep. He is very much his own man and is always open to listening to industry."

A large part of McKernan's duties at the FDIC involved dealing with the agency's internal sexual harassment scandal, where he drew both praise and criticism for disclosing information made at closed-door meetings. 

"He will have learned some things through that experience in terms of crisis management, because the CFPB is going through some trauma right now," said Eamonn Moran, a partner at the law firm Holland & Knight, who worked with McKernan when they were both at the law firm WilmerHale and the two remain friends. "Morale at the CFPB is very low, and people are going to look to him as the leader to provide a reset."

At the FDIC, McKernan had an improbable alliance with former CFPB Director Rohit Chopra, where they formed a bond pushing for oversight of large asset managers that hold sizable investments in banks, including BlackRock and Vanguard.

"He wants to see a healthy cost-benefit analysis and more granularity on fintech guidance," Moran said.

Some experts suggest that McKernan will return the CFPB to its original mission of educating consumers while others see him as moving the bureau away from expansive legal theories and social policy initiatives characterized by Chopra's tenure at the bureau.

"He can redirect the CFPB away from social policy and engineering to its original mission of educating consumers," said Peter Idziak, a senior associate at Polunsky Beitel Green, which is focused on the mortgage industry. "His nomination is a signal that the Trump administration intends to reform the CFPB rather than deleting it." 

To accomplish the Trump administration's policy goals, whatever they may be, McKernan will need knowledgeable staffers to rescind existing rules, including the $5 overdraft fee rule, the $8 credit card fee rule and a rule creating a nonbank registry. There also are other political reasons why the CFPB will continue its work.

"If they hollow out the bureau, then they're left with all the rules and regulations that were promulgated under the Biden administration and the Consumer Financial Protection Act," Idziak said. "They would essentially be ceding enforcement of consumer finance laws to Democratic attorneys general in the states."