Trump CFPB cuts raise concern about financial crises, conflict of interest

Yahoo

19-03-2025

March 19 (UPI) -- The Trump administration is well on its way to abolishing the Consumer Financial Protection Bureau while state officials and other organizations are preparing for what comes next.
Last week the administration ordered some 1,700 workers at the CFPB to stay home for the week as it continues to defang the agency. Adam Martinez, the bureau's chief operating officer, testified in federal court that the administration seeks to terminate most of its employees and directed the rest to stop enforcement.
The bureau is a congressionally created agency, requiring a vote from the U.S. Congress to legally abolish it. The Trump administration has made similar efforts to circumvent congressional approval in eliminating or greatly diminishing the capabilities of government agencies, such as the Department of Education.
The National Treasury Employees Union is joined in a lawsuit against the Trump administration to keep the bureau funded and in operation. Deepak Gupta, founder of the law firm Gupta Wessler and former senior counsel at the Consumer Financial Bureau, is representing the plaintiffs in the lawsuit against the administration and the bureau's acting director Scott Bessent.
"The Administration lacks the authority to suspend the agency's work, defund its operations, or halt enforcement of consumer protection laws," Gupta said in a statement to UPI. "Its attempt to do so is a tragedy for American consumers, and it is lawless. We remain committed to defending the CFPB and its mission to protect consumers."
Two of the agency's top officials, assistant director Eric Halperin and Assistant Director for Supervision Policy Lorelei Salas resigned last week, citing the order to cease all work as the reason.
"As you know, we have been ordered to cease all work. I don't believe in these conditions I can effectively serve in my role, which is protecting American consumers," Halperin wrote in his resignation. "Today I made the difficult decision to resign."
Salas wrote that she does not believe the order to stand down is "appropriate, nor lawful."
Functions of the Consumer Financial Protection Bureau
The CFPB primarily functions as the federal enforcer and regulator of financial institutions.
The CFPB was congressionally approved with the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The law was a response to the 2008 mortgage crisis. Some lenders engaged in risky and deceptive lending practices, including offering subprime mortgages to borrowers who were unable to keep up with payments.
The resulting mortgage collapse led to the mass foreclosure, nosediving home values and the period of the Great Recession.
Ira Rheingold, executive director of the National Association of Consumer Advocates, told UPI that before the mortgage crisis, federal regulators made little effort to protect consumers, noting it is important to consider the context under which the bureau was created.
"That led to the great mortgage meltdown," he said. "The Consumer Financial Protection Bureau was created to remedy that."
The CFPB establishes and enforces regulations for the ever-changing financial industry. It supervises financial institutions and investigates their books to ensure they are complying with federal laws.
Since 2021, the CFPB has led the charge on reducing junk fees and ordered medical debts to be removed from credit reports.
The agency has issued warnings against workplaces for surveilling workers and it engages in lawsuits on behalf of workers in cases of employers abusing workers' rights. In the final month under the Biden administration, it filed a lawsuit against Walmart and financial tech company Branch Messenger for forcing its drivers to use its deposit accounts.
The CFPB also issued rules to make it easier for consumers to change banks and have greater control over their data.
One of the largest consumer-facing functions of the CFPB is in taking and investigating complaints. It receives millions of complaints against financial institutions from consumers, filed directly through its website.
A majority of those complaints are related to credit reporting or other consumer reports. Some of the other main categories of complaints are about debt collection, banking accounts, credit cards and credit repair services.
"Consumers had a wonderful consumer response unit and a public database so consumers could complain about a financial services company," Rheingold. "It has a team that would contact a financial services institution and say, 'You have a complaint. Can you resolve it?"
Conflict of interest
Elon Musk, special adviser to the president and owner of X, is leading the charge on downsizing the government through the newly formed Department of Government Efficiency. As the Trump administration has its sights on the CFPB, Musk is also developing a payment system to be integrated with X called X Money.
X Money is a partnership with Visa that would allow users to connect with their bank account to send and receive money.
Christopher Peterson is a professor of law at the University of Utah. He also worked in the CFPB in its enforcement office under the Obama administration and as a special adviser to the bureau's first director Richard Cordray.
Peterson told UPI that while there is nothing inherently illegal about Musk's plans for X Money, his close relationship with the president and dismantling of the CFPB creates a conflict of interest.
"It's going to have to have a lot of regulatory checks built in that system," Peterson said. "The CFPB would be responsible for the oversight of that new business that is emerging. Instead of going through that process of regulating it, DOGE has come in and attempted to fire all of the people responsible for overseeing his financial business. If he is successful, it could become an extremely lucrative business."
X Money represents just one symbol of how the financial landscape has changed since the CFPB was created. Non-bank financial institutions have become far more prevalent. Alternatives to brick-and-mortar banks, digital payday lenders and e-commerce platforms have brought about new conveniences as well as a number of risks.
Absent the CFPB, traditional banks still fall under the oversight of other federal regulators like the Federal Deposit Insurance Corporation. There is no other federal regulator responsible for non-bank fintech companies.
State attorneys general have the jurisdiction to enforce regulations and combat fraud and abuse that happens within their borders. They also have many other responsibilities, such as upholding the general laws of the land, that limit their resources. Peterson adds that many of them lack the expertise to go toe-to-toe with the largest financial institutions in the world.
"One of the problems the CFPB was meant to address is when one bad apple company decides to take shortcuts or engage in deceptive practices, they can at times get a competitive advantage," he said. "It creates a race to the bottom. We saw that in the run up to the Great Recession and the mortgage crisis. Companies competing by pushing riskier and riskier loans that were so highly leveraged it exposed a risk to the entire U.S. economy."
"Companies that have been holding back or scammers that are becoming more bold are all now less likely to be deterred or corrected by CFPB actions," Peterson added. "The agency is one of the most important watchdogs in our economy to make sure our bank accounts and our transactions are safe."