Recent developments at the Consumer Financial Protection Bureau (CFPB) under the Trump administration have created significant uncertainty for financial institutions, consumer lenders, and compliance teams. The CFPB has effectively been shut down, with Acting Director Russell Vought ordering a halt to all regulatory, supervisory, and enforcement activities. These unprecedented changes, along with the nomination of former Federal Deposit Insurance Corp. (FDIC) Director Jonathan McKernan to lead the agency, raise pressing questions about the future of consumer financial regulation.
CFPB Shutdown and Regulatory Standstill
Over the past few weeks, the Trump administration has moved aggressively to dismantle the CFPB. After firing former Director Rohit Chopra on January 31, the administration appointed Russell Vought as acting director. Since then, Vought has taken the following actions:
- Issued a stop-work order halting all CFPB supervision and examination activities.
- Directed enforcement staff to "stand down" from ongoing or new investigations.
- Fired over 70 employees (approximately 4% of CFPB's workforce) hired in the past two years.
- Terminated more than 150 CFPB contracts, including those related to consumer complaints and expert witnesses in pending enforcement cases.
- Zeroed out the CFPB’s funding request from the Federal Reserve.
- Closed the CFPB’s headquarters for a week.
Additionally, reports indicate that the Department of Government Efficiency (DOGE), led by Elon Musk, has embedded personnel at the agency and may have access to confidential supervisory information. These actions have sparked legal challenges, including lawsuits filed by the National Treasury Employees Union (NTEU) and the city of Baltimore, alleging that the shutdown violates federal administrative laws.
McKernan's Nomination: A Potential Course Correction?
The White House has nominated Jonathan McKernan to succeed Vought as CFPB Director, with the Senate expected to confirm him swiftly. McKernan, who served on the FDIC board, is regarded as a serious policy professional with expertise in banking and mortgage markets. However, his policy positions suggest that while he may restore some CFPB functions, he will likely implement a deregulatory agenda:
- Opposed climate risk guidance at the FDIC.
- Criticized recent scrutiny of bank mergers and bailouts of financial institutions.
- Opposed changes to the FDIC’s brokered deposit rules.
- Promoted clearer third-party risk management guidelines for financial institutions and fintechs.
- Expressed concern over the implementation of Basel III’s endgame provision.
- Voted against the FDIC’s Community Reinvestment Act rule due to concerns about its complexity.
- Supported increased scrutiny of large asset managers like BlackRock and Vanguard.
While some industry observers see McKernan as a stabilizing force, others question whether his appointment is merely an attempt to deflect criticism from the administration’s efforts to neuter the agency.
What This Means for Financial Institutions
Despite the CFPB's closure, financial institutions must remain vigilant and continue to adhere to compliance best practices.
- CFPB Rules Remain in Effect - Even though the agency is inoperative, its regulations—including those finalized in late 2023 and early 2024—are still on the books. Firms should not assume that non-enforcement equates to repeal. Financial institutions should maintain internal controls, monitoring, and reporting mechanisms as if the CFPB were still fully operational.
- Other Regulators May Step In - States, banking regulators, and private litigants may take enforcement action in the CFPB’s absence. Historically, state attorneys general have stepped up enforcement when the CFPB scaled back its role, such as during the first Trump administration. Stay informed about state regulatory actions, as states may fill the enforcement void left by the CFPB.
- Consent Orders Still Apply - Financial institutions under existing CFPB consent orders should assume that their obligations remain in force. Failing to comply could create future legal and reputational risks.
- Increased Compliance Complexity - Without CFPB guidance, firms may face conflicting interpretations from state regulators, leading to compliance uncertainty. Institutions should document areas of ambiguity and seek legal advice to mitigate risk.
- CFPB’s Future Remains Unclear - If McKernan is confirmed, the CFPB may resume operations in a limited capacity, focusing on consumer education rather than aggressive enforcement. However, pending litigation and congressional negotiations could reshape the agency’s trajectory.
The CFPB’s effective shutdown represents an unprecedented shift in consumer financial regulation. While some in the financial industry welcome a less aggressive regulatory stance, the uncertainty surrounding enforcement creates compliance risks. With state regulators and private litigation likely to play a greater role, financial institutions must remain diligent in their compliance efforts and prepare for possible shifts in the regulatory landscape.
We will continue to monitor these developments and provide updates as the situation evolves. Please contact our financial services regulatory team for further guidance on how these changes may impact your organization.
Client Alert 2025-053
