Yesterday, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) announced that Scott Bessent, the recently confirmed Treasury secretary, is now the acting director of the Bureau. The announcement comes after the Trump administration fired former Director Rohit Chopra over the weekend.
Unlike the prior transition to a Trump administration, when then-Director Richard Cordray stayed on through most of the first year of President Trump’s term, the industry expected Director Chopra to be removed immediately due to a 2020 Supreme Court decision that held that the CFPB director may be removed at will by the President. President Biden removed Trump’s Senate-confirmed CFPB director, Kathy Kraninger, using that authority. However, Director Chopra continued to hold his job for almost two weeks after the inauguration. In our view, this delay was expected as the administration had to wait to remove Director Chopra until it had a Senate-confirmed individual who could be appointed to serve as the acting director under the Federal Vacancies Reform Act. The Trump administration presumably did not want to remove Director Chopra only to have one of his deputies serve as the acting director as the goal of installing Secretary Bessent as the acting director is to quickly shift the priorities of the Bureau.
Pause on Bureau Activity
On his first day on the job, Acting Director Bessent paused much activity at the Bureau, including by directing Bureau personnel to not approve or issue any proposed or final rules or guidance, suspend the effective dates of all final rules that have not yet become effective, not take any additional investigative activities (including settling enforcement actions), not issue public communications (including publication of research papers), and not make or approve filings or appearances by the Bureau in any litigation, other than to seek a pause in the proceedings, among other directives. This directive played out almost immediately on Monday, when the Bureau asked courts to pause actions. For example, the CFPB was slated to present oral arguments to the Fifth Circuit related to the CFPB’s 2022 changes to its UDAAP exam manual to include the concept of “discrimination as unfairness.” In lieu of the Bureau’s oral argument defending the policy, the CFPB attorney requested a pause in litigation to allow new leadership to evaluate the ongoing litigation.
Changing Priorities
Some close to the Trump administration have vowed to work to halt the Bureau’s work altogether. Legislation eliminating the Bureau or restructuring it is unlikely to pass because it would require 60 Senate votes. Nevertheless, the administration can impact the Bureau’s operation, including by not requesting funding for the agency, making new personnel decisions, and reversing existing Bureau policies.
It is unlikely that enforcement, guidance, and rulemaking will be paused throughout the entire Trump administration. For example, the Bureau continued to be active during the prior Trump administration. In fact, according to the Bureau’s website, there were more public enforcement actions under Trump-appointed Director Kraninger in 2020 than there were during any single year of the Biden administration.
Over the next four years, the Bureau will undoubtedly have different priorities and policy objectives than those of the Biden administration’s CFPB. For example, as we saw under the first Trump administration, the Bureau may be less likely to impose steep civil money penalties and instead focus on restitution to consumers and practices changes. However, the administration’s top financial regulatory priorities to date have been the adoption of digital assets and addressing de-banking by financial institutions. Accordingly, the Bureau could focus on de-banking, including potentially using its enforcement authority.
With respect to its supervisory work, the Bureau may decline to exercise its authority to designate nonbanks for supervision under the Dodd-Frank Act. Further, the Bureau could back off some of its more aggressive litigation positions and re-think certain proposed rules, including the recently proposed Regulation V rulemaking. Of course, final rules that are in effect remain in effect unless the CFPB takes action to roll them back, which would require the Bureau to follow time- and resource-intensive processes under the Administrative Procedure Act. It is unclear which final rules already in effect could be prioritized for formal repeal.
Conclusion and Other Considerations
Congress also could use the Congressional Review Act (“CRA”) to invalidate certain Biden-era CFPB measures. The CRA allows Congress to pass a resolution of disapproval of an agency rule within 60 legislative session days of the rule’s publication. Such a resolution, if passed by both Houses of Congress and signed by the President, invalidates the rule. During the last Trump administration, Congress used the CRA to invalidate a CFPB guidance bulletin and a regulation that would have prohibited the use of arbitration clauses. A number of CFPB guidance documents and regulations are vulnerable to CRA resolutions given the current makeup of Congress.
Notwithstanding the ongoing uncertainty with respect to Bureau activities, entities should be mindful of the fact that some state attorneys general and state regulators are likely to become more active to fill in the perceived lack of Bureau enforcement, enforcing state law and certain federal consumer financial laws. In the waning days of the Biden administration, the Bureau released a report with recommendations on how the states can be more active in legislation and enforcement of consumer financial protection issues. Moreover, entities should consider the statutes of limitation under the Dodd-Frank Act and other federal consumer financial law. In certain cases, it could be possible that, even if a Trump-led Bureau does not pursue certain conduct, the Bureau may choose to do so in the future under a different Director.
The Bureau’s direction remains uncertain. We will continue to analyze developments and publish additional analysis as the situation unfolds.