CFPB Pause: Where From Here?

Visit our resource center, CFPB Pause: Where From Here?, to stay on top of the latest and what it may mean for the federal and state regulatory and enforcement landscape.

On February 8, the Consumer Financial Protection Bureau halted virtually all supervisory, enforcement and litigation activity under its newly appointed Acting Director Russell Vought. A few days later, Jonathan McKernan was formally nominated as the next CFPB director. 

Orrick hosted a conversation on February 13 to assess the current state of play and answer questions from clients and market participants about these fast-moving developments, including what’s next for the Bureau and other federal financial regulators and how changes at the CFPB will shape the state regulatory and enforcement landscape.

Key Takeaways

1. How might this transition compare and contrast to Trump’s first term?

The current CFPB transition shares similarities with Trump’s first term, such as halting investigations, requesting $0 funding for a quarter, and instituting a hiring freeze. However, this time, the halting of all work is unprecedented, and the cancellation of $100 million in contracts is more aggressive than actions taken during the first term. Unlike the previous reduction in headcount through attrition or hiring freezes, there have been mass firings. These measures suggest a potentially more dramatic reformation of the Bureau, and we will need to observe how its activities are ultimately limited.

2. What do we know about Jonathan McKernan, the nominee for CFPB Director?

Jonathan McKernan is considered an establishment pick. A review of his speeches and hearings indicates an embrace of traditional Republican positions that oppose undue regulatory burdens and support responsible risk-taking. McKernan advocates for regulatory transparency and has criticized certain rulemaking efforts as duplicative, unnecessarily complicated, or barriers to entry. His approach suggests a focus on reducing regulatory complexity and fostering an environment conducive to innovation and competition.  

3. How will a pause on CFPB activity affect rulemaking?

The pause in CFPB activity affects rulemaking across three general categories. The first is rules that are published but the effective date has not happened yet. President Trump has ordered the effective dates for these rules to be postponed for at least 60 days, a reasonably well-established practice for incoming administrations over the past 25 years. The second category is rules that are in effect and are not being challenged in court. These are legal and in effect and should be adhered to unless repealed through formal notice and comment process or the statute itself is repealed by Congress. The final group consists of rules currently being challenged in court, which allows an agency to delay the rule under the Administrative Procedures Act. There are various other ways the Bureau could attempt to delay rules involved in litigation, including not defending the rule, though courts may allow third parties to intervene.

4. Does the CFPB freeze effectively deregulate many business activities?

While the CFPB’s pause in activity may suggest deregulation, significant compliance obligations remain. The Dodd-Frank Act consolidated enforcement within the CFPB but did not eliminate the oversight capabilities of other federal and state regulators. Although there might be opportunities to explore new business strategies, the prudential regulators, Federal Trade Commission, state financial regulators and state attorneys general retain enforcement authority. Additionally, future federal investigations may involve lookback reviews that could scrutinize today’s activities if the political climate shifts. Compliance risks also extend beyond regulatory bodies to other market participants, including private plaintiffs, emphasizing the need for businesses to evaluate the viability and risks of their strategies carefully.

5. Are there affirmative steps that can lock in business-friendly interpretations?

A functioning CFPB engaging in rulemaking and guidance can create regulatory safe harbors for businesses. Rulemaking through notice and comment is particularly important, as it establishes a durable regulatory framework that can protect market participants from future administrative changes or state attorneys general actions. Meanwhile, reliance on non-binding rules, interpretive opinions, and advisory guidance is more easily altered by subsequent administrations.

6. What activity do we expect from the states?

We expect many of the same states active during the first Trump administration to be busy once again, including, but by no means limited to, California, New York, Massachusetts, Illinois, and Maryland. State financial regulators are now extremely well-coordinated and possess statutes, regulations, and other tools that were not as developed last time through. The outgoing CFPB leadership supplemented these resources with a guide to states on how they could enforce the enumerated portions of Dodd-Frank, UDAAP, and state laws. State attorneys general are also very coordinated and active in consumer protection enforcement and likely to pick up current CFPB cases and engage with private plaintiffs to cover perceived resource gaps.

7. Looking ahead, what are some potential outcomes for the CFPB?

The CFPB cannot be closed by executive order without triggering challenges under the Administrative Procedure Act and other constitutional issues. The Bureau’s structure gives the director considerable discretion but also mandates certain actions and responsibilities. Some of these issues have not been decided in court, and it appears that the Trump administration may wish to challenge them. Potential outcomes for the CFPB include a significant reduction in its activities, a reallocation of its functions to other agencies, or a restructuring that maintains its core responsibilities while limiting its scope. The ultimate direction will depend on legal, political, and administrative developments in the coming months.