The Consumer Financial Protection Bureau’s (CFPB) operations were brought to an abrupt halt following President Donald Trump’s appointment of newly confirmed director of the Office of Management and Budget (OMB), Russ Vought, as the bureau’s new acting director. So, what does this mean for the agency and entities under its supervisory authority?
Despite a number of recent moves under the Trump administration aimed at curtailing the CFPB’s ability to write, enforce or litigate on behalf of its rules regulating both depository and non-depository financial institutions, the recent social media post by Elon Musk, head of Trump’s Department of Government Efficiency (DOGE), saying “CFPB RIP” was likely premature, to say the least.
Vought wasted no time, telling the Federal Reserve the bureau will decline its next scheduled draw to fund its operations and asserting the agency has “excessive” funds in its reserves of over $700 million. This move followed a freeze on rulemaking and litigation imposed under U.S. Treasury Secretary Scott Bessent, who spent only one week in the acting director role at the bureau.
With these actions in mind, it is easy to understand why someone may interpret the Trump administration’s actions as a death knell for the bureau. Some covered entities might interpret these recent events to mean they will no longer have to comply with CFPB regulations.
However, former CFPB Senior Counsel and co-managing partner at Garris Horn LLP Richard Horn told Dodd Frank Update otherwise. Rather than turning into a dead or zombie agency, Horn expects lawsuits from consumer advocates and for the court system to step in to force the bureau to fulfill its statutory obligations.
“I believe they’ll be able to find some Obama administration or Biden administration-appointed judges to rule in favor of the CFPB being mandated by law to operate,” Horn said. “Those rulings, I would think would be followed by the current acting director, as somebody who believes in the rule of law. That would be one way to stop the acting director from telling staff to do nothing and the agency from just curling up in a ball and dying. The CFPB does have to examine nonbanks. It does have to conduct its market monitoring functions and satisfy all the other mandates under Dodd-Frank. So I think that that could happen.”
Another former CFPB General Counsel, David Friend of Friend Consulting, was less certain of whether the court system would get involved in the general operations of an agency controlled by the executive branch.
“Supervision and enforcement are executive branch functions, and courts tend to give leeway to executive branch agencies,” Friend told Dodd Frank Update. “If the executive agency declines to proceed with an action, courts do not typically inquire as to the reasoning behind it.”
The other way opponents of the bureau could try to effectively nullify the agency would be through legislation, but there are hurdles there as well.
Trump’s decision to replace Bessent with Vought came the day after Vought’s confirmation as head of the OMB by a divided Senate in a 53-47 party-line vote.
Such a vote would not be enough to dismantle the CFPB, which would require 60 votes. Horn and Friend agreed this is not likely to be in the cards.
“You’re not going to get even the more moderate Democrats on board with abolishing the bureau,” Horn said.
Friend raised other questions relating to his point about the courts possibly not wanting to interfere with the day-to-day operations of an executive branch agency.
“The questions I’m asking right now are who is going to continue to require adherence to the laws on the books,” Friend explained. “In the mortgage space I’d expect Fannie Mae and Freddie Mac to continue to require compliance with existing rules and regulations for all mortgages that they acquire – and state attorneys general (AGs) and consumers (in some instances) can bring suit under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).”
Democrats, including Sens. Elizabeth Warren (D-Mass.) and Tim Kaine (D-Va.), pushed back strongly against Vought’s confirmation, citing his prominent role in crafting Project 2025 and reports that he wanted federal employees to be “put in trauma” and to be “viewed as villains.”
Project 2025 recommended eliminating the CFPB. However, to abolish or “delete” the bureau, as Musk has called for on social media, Congress would need to pass legislation repealing or amending large portions of Title X of the Dodd-Frank Act.
Horn pointed out a potential oversight in Project 2025 concerning the legitimacy of the CFPB’s funding structure in a blog post on the Garris Horn LLP website.
“It appears that Project 2025 assumed that the CFPB’s funding mechanism was unconstitutional,” Horn wrote. “But we know that the Supreme Court actually overturned the Fifth Circuit’s decision in CFSA v. CFPB and held that the CFPB’s funding was constitutional. It’s not entirely clear that the Project 2025 document calls for the abolishment of a constitutionally funded CFPB, though I suspect the authors probably still do want to see it abolished as a policy matter.”
With the CFPB’s funding structure on stable legal footing, a restructure may be a most feasible approach for the agency’s political opponents.
“The Democrats would rather see the bureau under a board or commission than see it go through years and years and years of litigation and kind of dragging its feet to do anything,” Horn said. “Even if the court tells the bureau, ‘Yes, you have to go and examine nonbanks,’ the CFPB doesn’t have to do it well. They don’t have to do it quickly. There’s nothing that puts any timeframes on exams or any goals for the CFPB in any statutory mandate.”
When all is said and done, this matter could be a telling indicator of how the U.S. government’s system of checks and balances between the three branches of government will function under the Trump administration.
For more from Horn and Friend on this topic, register now for the webinar "Emergency Briefing: CFPB's Shake-Up & Its Impact on You" here.