Consumer Financial Protection Bureau Could Be Led to Its Demise From the Inside

Amid legal and political squabbling over the future of the Consumer Financial Protection Bureau, the Trump administration is seeking to input a highly credible attorney at the top of the financial watchdog, perhaps with the intent of tearing it down. The Senate Banking, Housing, and Urban Affairs Committee is scheduled to hear from Jonathan McKernan on Thursday during a hearing on his and other nominations to financial oversight positions. Mr. McKernan, formerly a Treasury senior counsel and Senate Banking Committee counsel under Senator Toomey, was President Biden’s Republican appointee to the FDIC, and before that an appointee to the Federal Housing Finance Authority. He has been praised by his Democratic predecessor at CFPB, Rohit Chopra, for seeking oversight of large asset managers. However, Mr. McKernan may not be in it for the long haul. Republicans have long accused the bureau of political pursuits and unaccountability. They note Operation Chokepoint which occurred during the Obama administration, which sought to debank “undesirable” businesses like pawn shops and gun makers. More recently, the bureau spent a record-setting amount per square foot on renovations to its headquarters, lost 256,000 consumers’ information to hackers, and initiated expensive DEI initiatives. Lawmakers like the Senate Banking Committee chairman, Senator Scott, and the House Financial Services Committee chairman, Congressman French Hill of Arkansas, have said they wish to roll back some of the bureau’s actions, including retracting the Biden administration’s last-minute efforts to cap overdraft fees. Earlier this month, the bureau dropped a case against SoLo, a peer-to-peer mobile app. Lawmakers have also said they want to throw out the bureau’s rulemaking on big tech’s role in digital currency.Congressman Byron Donalds of Florida, Mr. Trump’s pick to be the state’s next governor, wrote on X that he is introducing legislation to “eliminate this unaccountable, highly partisan agency once and for all.”It is unlikely eliminating the bureau would succeed. Dissolving it would require overcoming a 60-vote filibuster threshold in Congress. However, the administration may take a different route altogether — defunding the bureau by following its own funding rules. The bureau’s operations, while largely independent of congressional meddling, thanks in part due to its funding mechanism, is supposed to draw its funding from Federal Reserve Board surpluses. Since the Federal Reserve has been operating at a deficit since September 2022, the bureau should not be able to receive any monies unless through congressional appropriation. “There are no earnings to send to the CFPB, no earnings and no payments coming from the Fed,” a senior fellow at the Mises Institute, Alex Pollock, told the Sun. “The Dodd-Frank Act itself says that the Fed can only pay from its combined earnings. … No payment from the Fed doesn’t mean no operations. That means if you want the money, you have to go ask Congress for it.”Mr. Trump’s head of the Office of Management and Budget, Russell Vought, who has been serving as acting director of the bureau since early February, ordered the bureau’s headquarters at Washington shuttered and told employees not to report to work. He also declined a Fed cash infusion.Writing on X on the day of his appointment, Mr. Vought announced that the bureau has informed the Fed that it will not take “its next draw of unappropriated funding” because it is not “reasonably necessary” to conduct its duties. He noted that the bureau’s coffers, already filled with $711.6 million of the Fed’s funding, had enough for operations.The series of actions led to protests outside headquarters and a lawsuit by the Treasury’s public union employees. Mr. Vought defended his moves in a federal district court motion filed this week, saying the nomination of Mr. McKernan makes clear that the administration does not plan to close down the bureau, but it will become more “streamlined and efficient.” He added that closing the bureau headquarters was the result of protestors congregating outside the building “even though the overwhelming majority of CFPB employees primarily telework rather than work in the office.” The bureau reports that it has saved $21 billion for consumers facing excessive bank fees or unfair loan terms in its 13 years of operation. Of the 6.8 million consumer complaints filed with the bureau since 2011, 4.6 million have been related to credit reporting while another 96,000 have been about student loans. Public polling suggests that consumers look favorably upon the bureau. Senator Warren of Massachusetts, who helped create the bureau during President Obama’s first term — a year before she took her first stab at elected office — is insisting that Mr. McKernan run the bureau the way she envisioned it. On Tuesday, the Banking Committee’s ranking member sent a list of 55 questions to Mr. McKernan ordering him to be prepared to answer every question during the hearing and provide written responses afterward. “At your nomination hearing on February 27, 2025, you must demonstrate to the U.S. Senate Committee on Banking, Housing, and Urban Affairs that you are willing and able to advocate for consumers, the CFPB, and the robust enforcement of consumer protection law, no matter the directives you receive to the contrary,” she wrote. But Mr. Pollock said Ms. Warren’s pleas may be in vain. “The whole setting up of (the bureau) tried to insulate it from accountability to the Congress so that you could have a director with his own agenda not answerable to the elected representatives of the people,” Mr. Pollock said. “That’s a terrible idea to try to insulate the agency from oversight by the Congress.”

Consumer Financial Protection Bureau Could Be Led to Its Demise From the Inside

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