The Consumer Financial Protection Bureau was set up by president Obama in the wake of the Great Recession in part to prevent the events of the 2008 housing crisis from happening again. Financial and banking lobbyists have long pushed back against the agency, citing government overreach.
Now, with the President Trump’s pledge to weed out waste and inefficiency across a variety of departments and agencies, the future of the CFPB seems murky. Texas’ own U.S. Sen. Ted Cruz has introduced a bill to defund the agency in its entirety, and this week staff and contractors were told they “cannot perform any work tasks.”
Chuck Bell, a program director at Consumer Reports who’s been following this for years, joined the Standard to talk about how halting the bureau’s work could impact everyday folks.
This transcript has been edited lightly for clarity:
Texas Standard: Before we get into what’s going on with the CFPB at the moment, I wonder if you can help connect the dots for folks on what over the past 14 years the CFPB has actually done in the name of protecting consumers?
Chuck Bell: Well, when the CFPB was created, it was in the wake of a very serious financial crisis, as people may remember. Millions of people lost their jobs. There was over 8 million home foreclosures, and there was about 500 bank failures in that period.
And so one of the core reasons was that we had financial products such as mortgages that had interest rates that recessed and went sharply higher, causing many people to lose their homes.
And so the idea was that financial products should be safe, just like a toaster is safe, and not blow up in your face. And we need to have an agency that makes sure that financial products are clearly disclosed and that are also safe from systemic risk.
But specifically, what did the agency do? I mean, as you look back over what its supporters would say were its accomplishments, what has it done?
So it has a broad range of responsibilities to supervise and oversee financial institutions and also make rules and regulations that protect consumers. It has engaged in a lot of enforcement activity that secured almost $20 billion in relief for an estimated 195 million consumers.
It set up a national complaints database, and it’s handled over 5.6 million complaints from consumers across the country, often helping people to sort out things like errors on their credit reports and excessive loan payments that they shouldn’t have to make.
All right. So the CFPB has now been told to stop all work. I saw that the Fifth Circuit Court of Appeals just paused a case involving Texas banking industry groups. How is the work stoppage at CFPB affecting things on the ground as you see it?
Well, it’s creating a risky marketplace for consumers. The financial services marketplace is very large and dynamic, and it now has many elements of innovation, such as artificial intelligence and big data and digital products.
So the CFPB is the primary federal regulator that deals with non-bank companies such as fintech companies and others, non-bank mortgage companies. So it has a lot of responsibilities to make sure that products are safe in all areas –
Credit cards, that sort of thing?
Yeah, credit cards. They’ve made an important rule to reset credit card late fees, which is being challenged in the Fifth Circuit in Texas. They’ve also proposed a limit for overdraft fees.
And they propose that medical debt not be reported on credit reports because it’s not a great predictor of financial risk for credit cards or other types of loans.
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But of course, the CFPB – I think the work stoppage is for a week. You have a high federal holiday, of course; I think in like December, the CFPB goes on vacation like most federal employees do. What does it mean for the CFPB to be closed for a week?
Well, it’s not clear that it’s only going to be for a week. Last week, Elon Musk’s DOGE team entered the agency to shut down its work, and at the end of the week it tweeted, “CFPB RIP.”
So they’ve been directed to stop all work, and that includes not defending the lawsuits that are pushing forward rules that would protect consumers, not bringing cases against companies that have ripped off consumers.
Recently, they fined the company Cash App over $175 million and got $120 million in restitution for defrauded customers. So those types of actions are going to be held up, and they might be stopped altogether.
And you also have Mr. Musk, who’s trying to create a payments platform himself in partnership with Visa, entering the agency and getting very sensitive data about the bureau’s work and even data on his own competitors. So that’s a pretty unusual situation from where we sit as a consumer protection organization.
Texas Sen. Ted Cruz has moved to defund the agency altogether. If he gets his way, how will that affect CFPB? Would they close down altogether automatically because of that bill, or how do you see it?
Well, I’m not sure. I think it would dramatically slow down their work over time. One of the benefits of the way that the CFPB has been funded by getting an independent stream from the Federal Reserve is that it’s allowed the agency to pursue its work independently, free of industry interference.
Just about every banking regulator you can think of has suffered from the concentration of interest in the banking industry, where they try to influence the course of regulations and stop some regulations or oversight from happening.
I was going to ask about that, because before the CFPB, which is a recently created agency, this was handled by a variety of different departments across the federal government.
Exactly. And from our perspective as consumer and community groups, we feel that none of those federal bank regulators like the Federal Reserve, the FDIC and the OCC did a particularly good job handling complaints from consumers.
Our groups went to the Federal Reserve to complain about the increase in predatory mortgage lending before the financial crisis, and we were essentially ignored and turned away. And so when we saw a serious problem coming for the customers later on, it came for the entire economy.
And I think if you shut down the work of a strong independent financial regulator, you could be looking at creating the conditions for another financial crisis in the future. And in the meantime, many customers will just simply go without protection in a very complex and dynamic economy.
Where does this stand? Have there been legal actions or steps taken to try to prevent the CFPB from being shut down?
There’s nothing immediately that’s going to reverse what happened last week. But I do believe that some legal challenges will be filed. And there’s certainly a lot of concern among members of Congress.
The role of this agency is pretty popular across the whole political spectrum, even among independents, Republicans and Democrats. People know when they run into a financial problem, they need someplace to take that problem to help get it resolved. And that’s the role that the CFPB has been playing: a very practical and utilitarian role.
