Trump Administration Moves To Rein In The CFPB

On February 3, 2024, in a sweeping move signaling a major shift in trajectory for the Consumer Financial Protection Bureau (CFPB), newly appointed Acting Director and Treasury Secretary Scott Bessent has ordered a near-total freeze on the agency's operations. This development comes as President Donald Trump continues his efforts to curtail the CFPB's regulatory and enforcement reach following years of increasing supervisory activity under the Biden administration.

Key Developments

• CFPB Operations Halted: Bessent has instructed CFPB staff to suspend all rulemaking, litigation, public communications, and enforcement actions. According to public reports, the directive, issued via internal email, states that only activities explicitly authorized by Bessent or required by law may proceed.
• Regulatory Freezes: The agency has been ordered to suspend the effective dates of all final rules that have not yet taken effect. This includes major regulatory measures such as the prohibition on including medical debt in consumer credit reports and the controversial $5 cap on overdraft fees.
• Litigation Paused: The CFPB's involvement in pending litigation is now limited to seeking continuances, as demonstrated in Texas Bankers Association v. Consumer Financial Protection Bureau (No. 24-40705), in which yesterday CFPB attorneys filed a letter with the Fifth Circuit entitled "Emergency Notice" in which it stated that CFPB attorneys were unable to argue at the hearing previously scheduled for yesterday because "[t]he President removed the prior Director of the CFPB" and they were subsequently "instructed not to make any appearances in litigation except to seek a pause in proceedings."
• Enforcement Actions On Hold: On Bessent's instructions, enforcement investigations and settlements also have been put on hold. It is unclear what this means for targets of investigations that have been served with Civil Investigation Demands(CIDs), but recipients of CIDs are likely to seek to negotiate withdrawals of previously served CIDs.
• Public Communications and Agreements Stopped: The CFPB has ceased issuing research papers, press statements, and other forms of public communication. The agency is also prohibited from entering into any new material agreements, including those related to employment and contractor relationships.

A Stark Contrast to Prior CFPB Activity

This abrupt halt marks a dramatic shift from the CFPB's aggressive posture in recent years. Under former Director Rohit Chopra, the agency significantly expanded its oversight and enforcement efforts, particularly in fintech and digital payments. As discussed in our prior analyses:

• Nonbank Supervision Expansion: The CFPB introduced a nonbank order registry aimed at increasing oversight over fintech firms and other nonbank entities. (Read more)
• Proposed Oversight of Digital Payments: The CFPB sought expanded authority over large digital payment platforms, signaling a regulatory push into emerging financial technologies. (Read more)
• Erosion of Due Process in Appeals: The agency restricted companies' ability to challenge supervisory and enforcement decisions by limiting intra-agency appeal rights. (Read more)

What's Next?

While Bessent's order does not explicitly address the CFPB's direct supervision of regulated entities, it remains to be seen whether the agency's examiners will continue oversight activities or if additional restrictions will follow. The broader implications for financial institutions and fintech firms are profound:

• Regulatory Uncertainty: Firms that were preparing to comply with imminent CFPB rules may now face delays or a complete rollback of certain requirements.
• Paused Investigations: Entities facing CFPB enforcement scrutiny may see cases stall, though other financial regulators such as state attorneys general and financial regulators like the New York Department of Financial Services could still step in.
• Future Policy Direction: If the administration moves forward with efforts to end or dramatically reduce enforcement activity by the CFPB, as some reports suggest, financial institutions may face a regulatory landscape increasingly shaped by other federal and state regulators.

Conclusion

The CFPB's abrupt operational freeze marks one of the most significant regulatory shifts in recent years, underscoring the Trump administration's intent to curb the agency's power. Financial institutions and fintech firms should prepare for continued regulatory uncertainty and monitor further developments closely.