With an across-the-board freeze on all rulemaking, enforcement, and supervisory activities, and a potential mass lay-off in the works, the CFPB continues to make news. Here’s a recap of all that happened this past week at the Bureau.
Permanent Director Nomination Moves Forward
On Thursday, Jonathan McKernan, President Trump’s nominee for permanent director of the CFPB, met with the Senate Banking Committee in the first step towards a vote on his nomination. Notably, McKernan promised that he had no intention of shutting down the agency. As McKernan testified:
“[t]he North Star here is, you[‘ve] got to follow the law fully and faithfully execute the statute,” McKernan said. “I [take] that very seriously as a former congressional staffer, an Article 1 guy. I’m going to make sure the CFPB performs each of its statutory functions.”
However, his testimony also made clear that the Bureau would operate much differently than it did under former Director Rohit Chopra. Indeed, McKernan said he envisioned changes to the Bureau’s excesses under the former administration, and took former Director Chopra to task for engaging in regulation by enforcement and creating regulations that, in his view, increased costs for consumers.
An Attempt to “Wind Down” the Bureau From Within?
In allegations detailed in an ongoing lawsuit against the Bureau and Acting Director Vought, a number of current CFPB employees claimed Friday that they were instructed to assist with terminating the remaining CFPB employees and to “wind down” the agency. According to the employees, the Trump Administration and the Dept. of Government Efficiency (DOGE) team intend to cut the CFPB down to the barest minimum staffing levels as required by law: five individuals. The employees further contended that they were told that the “CFPB will become a room at Treasury, White House, or Federal Reserve with five men and a phone in it… .” The legality of this move is likely to be questioned, so we expect litigation to follow… stay tuned.
An End to Various Enforcement Actions
While McKernan was testifying, the Bureau dismissed five pending enforcement actions, following in the dismissal of another action last week. A number of those actions were filed after the election in November 2024 and, given the Bureau’s change in priorities with a new administration, it was not necessarily a surprise that these new lawsuits were subsequently dismissed.
More Legislation Aimed at Reducing the Bureau’s Power
As we discussed previously, only Congress has the power to abolish a federal agency, and the votes to overcome the filibuster in the Senate do not exist to abolish the CFPB outright. As such, Congressional Republicans have been busy proposing legislation aimed at reducing the power and authority of the Bureau.
For example, Representative Andy Barr (KY), chair of the financial institutions subcommittee, reintroduced two pieces of legislation targeting the CFPB’s current authority. One bill would limit the Bureau’s ability to find an abusive practice in violation of the Consumer Financial Protection Act (CFPA). The proposed legislation would prohibit the CFPB from including discrimination as an abusive practice. It would also define abusive conduct as an action that causes substantial injury not reasonably avoided, that the injury isn’t outweighed by benefits to consumers or to competition, or that is otherwise prohibited under consumer finance law. The bill would also preclude the Bureau from seeking monetary relief when the financial company has shown a good-faith effort to comply with the CFPB.
The other piece of legislation would include heightened requirements for a civil investigative demand (CID). In addition to requiring the CID to state the “nature of the conduct” that gave rise to the investigation (which is currently required), Rep. Barr’s bill would require the CID to also include “specific reference to particular facts” that led to the investigation. It would likewise provide a way for targeted companies to ask follow-up questions to the CFPB upon receipt of a CID and include a six-year limitation period for issuing a CID. The bill has bipartisan sponsors but it is not clear that it has sufficient support in Congress as a whole.
These bills follow in the footsteps of previous Legislation sponsored by Senator Ted Cruz that seeks to defund the CFPB completely.
