At the Consumer Financial Protection Bureau, a sizable shoe has dropped.
CFPB Director Rohit Chopra’s firing over the weekend by President Donald Trump was no surprise to anyone, but questions swirl over what comes next. To get a sense of what lies ahead for the CFPB in Trump 2.0, the events and focal points of Trump’s first go-round may prove telling.
Much is now in limbo. As of Monday morning (Feb. 3), no replacement for the ousted director has been named, and rulemaking has been paused (across all federal agencies, not just the CFPB). The fact that new leadership would ostensibly be named right as the agency’s lifeline — funding — is being re-examined under Congressional fire is a bit like simultaneously remodeling and demolishing a building.
The CFPB has withstood a constitutional challenge. Last year, the Supreme Court ruled that the funding set in place by Congress, via money that flows from the Federal Reserve, is allowed to stand.
Last week, Sen. Ted Cruz of Texas introduced the “Defund the CFPB Act.” The proposed legislation would “amend the Consumer Financial Protection Act of 2010 to limit to $0 the amount that the director of the bureau of consumer financial protection may request to fund the activities of the bureau.”
The Federal Reserve has shown pockets of earnings from operations such as Fedwire and the National Settlement Service. Overall, however, the central bank is running at a net loss; the Fed’s annual report listed a consolidated loss of about $111 billion in 2023 alone. One critic, Hal Scott, emeritus professor at Harvard Law School and director of the Committee on Capital Markets Regulation, contended in The Wall Street Journal that the funding is illegal and draws upon earnings that are simply non-existent.
As for whether the past may prove telling for the future, the zero-funding argument has been used before. In 2018, then-acting director Mick Mulvaney, who succeeded Richard Cordray (a President Barack Obama-era appointee), requested that the Fed provide zero funding. He argued that the CFPB already had more than $177 million on hand, which was enough to cover expenses.
More recently, the CFPB’s financial statements revealed that in September (the end of its latest fiscal year), the agency had a net cash position of about $619 million. Transfers from the Fed represented $729 million, so the read-across is that narrowing or even closing off that stream of funding would effectively grind CFPB operations to a halt. The 2018 echo of Mulvaney’s request of the Fed may have implications for incoming leadership.
After Mulvaney’s tenure, Kathleen Kraninger was the second Trump appointee, and upon taking the director role in 2018, steered several consumer education initiatives, including guides on managing credit and savings. By the end of 2020 (Kraninger stepped down at President Joe Biden’s request in 2021), the CFPB had taken 42 enforcement actions tied to about $670 million in civil penalties.
As for rulemaking, Kraninger’s stint with the CFPB set in motion the first steps toward implementing Section 1033, more recently reshaped under Chopra to include payment apps and data brokers. Banks and other covered parties have pointed to technology overhauls and liability risks as they share data with third parties. Those issues will be front and center in any CFPB efforts under Trump 2.0.
Rulemaking, arguably, was not as sweeping under Trump 1.0. The surge of Chopra-era rules, especially through the last few weeks and months of the Biden administration (about a half dozen proposed rules and four final rules in just the past four months), greatly expanded Big Tech oversight, especially in terms of digital wallets, curbed fees and brought buy now, pay later (BNPL) providers under the umbrella of regulations governing traditional credit card firms. There are several challenges moving through the legal system.
We may see a return to a Trump 1.0 blueprint wherein the CFPB is more an enforcement agency than a fully charged rulemaking entity, and new management has the power to revisit and rescind recent rules. Much hinges on where the money to sustain operations will come from — and when.