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Partisan politics dominated a House Financial Services Committee discussion of how the US Consumer Financial Protection Bureau (CFPB) could be more accountable to Congress.
The CFPB’s future remains uncertain, and although the Trump administration continues to deny planning to shut it down, the bureau has at least been relinquished of its capabilities to undertake enforcement.
The regulator did not shy away from enforcement activity during the Biden administration, notably against Zelle, Apple, Capital One, Experian and Equifax, but in the new era such actions appear unlikely.
During the hearing, Representative Andy Barr (R-KY) said that the new administration “understands the costs of burdensome overregulation” and rubbished the previous leadership of the CFPB under Rohit Chopra.
He criticised its approach as “opaque and abusive”, adding that “nowhere has overregulation and overreach been more evident than at the CFPB”.
Barr branded the regulator the most “unchecked, unaccountable agency in the entire federal government”, saying that it prioritised “politics over sound policy, leading to disastrous outcomes for American consumers”.
He said that this new era will mean “businesses are not attacked through press releases or tweets”, and that the new leadership of the CFPB will mean businesses can provide financial services in a “competitive, safe, sound” manner.
In addition, he accused Chopra’s leadership of the CFPB of “hoping to find something” rather than actual wrongdoing at companies that it oversaw.
“These fishing expeditions were designed to litigate companies into bankruptcy, or destroy their reputations, doing nothing to protect consumers.”
Barr’s proposal during the hearing was to make the CFPB a bipartisan operation, bringing it under congressional control.
The Democrat response
In a sign of how partisan US policymaking will be in the coming years, Bill Foster (D-IL) accused President Trump and allies such as Elon Musk of planning to shut down the CFPB, which he said is needed for consumers’ “financial security”.
“These are not reforms, these are illegal attacks on the CFPB,” he said.
Foster namechecked rules such as Section 1033, which should pave the way for open banking in the US if the CFPB is actually able to enforce it at federal level.
He also said that the bureau is important for regulating fintechs, and ensuring they face the same level of regulatory requirements as are imposed on banks and credit unions in the US.
Foster warned that its dilution will give big tech companies “free rein to invade the regulated financial system, without accountability, while banks and credit unions are highly regulated”.
He also echoed Congressional colleagues such as Elizabeth Warren in accusing Musk of undermining the CFPB at a time when he is reported to be making X a payments and financial services company.
A shortage of fans
The public hearing was cutting, and few stakeholders had anything good to say about the CFPB aside from suggesting that its existence is necessary.
David Pommerehn, representing the Consumer Bankers Association, said: “The Bureau’s leadership unfortunately prioritised short-term political wins over what is best for consumers.”
He added that “enacting the legislative changes recommended in this testimony would help protect against the radical pendulum shifts that have taken place in the last three administrations and result in policies that are more measured and durable”.
Bryan A. Schneider, a partner at the law firm Manatt, Phelps & Phillips, said that “the announcement of new regulatory requirements through blog postings, a director’s speech, or other sub-regulatory pronouncements calls into question the legitimacy of the agency and creates a situation where regulatory expectations change rapidly according to the vicissitudes of each incoming administration”.
He described this approach as irresponsible, and argued that such behaviour from the regulator was triggering a decline in innovation and competition.
Schneider, a CFPB staffer during the previous Trump administration, acknowledged that enforcement is a key part of the bureau’s mission, but said it “should be reserved for situations in which the CFPB has exhausted other available options”.
“Civil penalties unquestionably play a role in a reasoned enforcement regime, but eye-popping fines just for the sake of grabbing headlines should have no place,” he said.
The need for change
Schneider’s thoughts were echoed by Ana Fonseca, CEO of Logix Federal Credit Union, who said that “recent years have seen the CFPB focus less on its statutory mission and become more focused on changing the marketplace in a politicised fashion”.
Commending the committee for beginning a “difficult discussion”, Fonseca said that “change needs to come to consumer protection, and we believe the time for Congress to act is now”.
“We believe the CFPB and Congress must take this moment of administrative transition to recalibrate the bureau’s priorities and operational framework to balance robust consumer protections with a regulatory environment that promotes innovation, transparency, and accountability,” she said.
Her view is that these changes must include the CFPB taking a more disciplined approach to rulemaking, enforcement and retrospective regulatory review.
She also called for fair examinations and a focus on reducing unnecessary burdens on financial institutions such as credit unions that play a vital role in local communities.
Cops off the beat
Defending Chopra’s leadership of the CFPB, his former staffer Seth Froman criticised the committee, saying that it is time for the bureau to get back to work.
During his testimony, he said that President Trump and his team “have taken Wall Street’s cops off the beat, tearing the signs off the CFPB building and granting shameless pardon after shameless pardon to companies that ripped off their own customers”.
In a series of questions, he asked members of Congress whose side that they are on.
“Are you on the side of seniors and servicemembers who’ve been scammed on payment apps, or the big banks and tech billionaires who turn a blind eye to fraud? Are you on the side of people who get 'debanked,' or the financial institutions that fight like hell to keep doing it?”
Consumer protection is a hot mess
For now, it appears likely that partisanship and distrust of the CFPB will hold up any actual enforcement activity.
The Republicans on the committee, as well as the individuals giving testimonies, argue that enforcement should be reserved for instances where absolutely necessary.
The theory seems to be that this should create a much safer space in the US for payments companies to innovate.
It remains to be seen whether progressive changes to banking, such as Section 1033, are going to go ahead in a way that means banks are held accountable for blocking access to account information and payment initiation service providers (PISPs).
However, considering how lacklustre enforcement of the revised Payment Services Directive (PSD2) has been in Europe, aside from some censures from the UK’s Competition and Markets Authority (CMA), fintechs may be used to operating in this kind of environment.
