It seems like a dumb idea to shut down the US’s Consumer Financial Protection Bureau.
This is a pretty uncontroversial statement, right? If someone gets ripped off by a bank or debt collector, the CFPB can actually send them money. Its fines have been levied against payday lenders, for-profit colleges, scammy credit-improvement services, and big banks that wrongly repossessed cars. This is not a group that’s popular with American voters!
Yet agency employees haven’t been able to work all week, after acting director Russell Vought told them to stop. It dismissed more employees last night, with news reports counting 70 to 100 lay-offs. An employee lawsuit says that Vought this week cancelled $100mn of contracts “that enabled the CFPB to do all aspects of its work, from processing consumer complaints to litigation to supervision.”
This is an odd choice for an administration that wants to bill itself as populist.
Last year the CFPB sent $2bn to Americans who were misled into using scammy credit-improvement and check-cashing services. That was an outlier — demonstrating value to US voters ahead of executive-branch turnover, if you want to be cynical — but in 2023 it distributed $417mn without comparable pressure. Since inception it has distributed $3.5bn, according to its latest annual report. And the CFPB says it’s saved Americans nearly $20bn when debt cancellations and reductions are taken into account.
Who’s going to have a problem with that?
Well, there are detractors. One of the agency’s more outspoken critics, Austen Allred, seemed to sour on the CFPB after his “coding boot camp” was fined* for misleading students about their likelihood of getting a job. Allred seems to particularly dislike the CFPB’s characterisation of the school’s financing as loans, though it seems like selling equity — an ownership stake — in a student would be worse, constitutionally speaking.
Another critic is Balaji Srinivasan, also a tech educationy founder type who once lost a $1mn bet to an anonymous Twitter account. His argument seems to be that collecting fines is the same thing as civil forfeiture. This is puzzling because, again, the CFPB can actually send money to Americans.
But hey, maybe there’s something we’ve missed? White House officials are clearly jonesing for evidence that the press won’t give them a fair hearing, so let’s do our best to be fair.
It isn’t obvious that the shutdown will be permanent, either. Policy guidance is hard to find these days — even for banks and legislators, we’ve been told. DOGEfather Elon Musk posted “CFPB RIP 🪦” this week, but he also tweeted “funding secured” when funding had definitely not been secured. And there’s a lawsuit asking for a legal injunction against the actions of Vought et al.
So instead of trying to guess whether DOGE will succeed in dismantling the agency, we’ll instead examine why it might be a goal.
Some less-than-flattering ideas: Does an aspiring payments tycoon want to peer into the otherwise confidential business details of fintechs and consumer banks while hamstringing a regulator that just bid for some power over wallet technology? Or are Republicans eager to end one of the few US government agencies that can send checks to Americans because it was created by Sen Elizabeth Warren, and they don’t want her or the Democrats to get credit?
Wait, no, sorry. We’re stretching assuming good faith so we don’t fuel the persecution complexes of the most powerful people on earth. So those explanations will go on the backburner until later in this post.
One argument is that the CFPB performs tasks that can be handled by other agencies. But . . . who? Do Republicans want state and federal prosecutors to take lawyers from violent crime cases and reassign them to payday lending scams?
How much hiring would the Federal Reserve or the Office of the Comptroller of the Currency or (god forbid) state financial regulators need to do to handle retirees’ complaints? Do these agencies have the statutory ability to provide restitution to individuals? The Fed has enough to worry about right now, doesn’t it?
And because we’re stretching taking DOGE and Musk at their word: How does it make government more efficient or helpful to force-reroute Americans’ complaints about their banks into a bureaucracy as large and forbidding as the Fed or OCC?
Surely, Republicans and Musk aren’t arguing to the public that there shouldn’t be a place for people to complain about financial scams. That sounds politically risky! We’d love to see how it polls.
There’s a broader issue here, of course: The law is very clear about who creates and destroys agencies (Congress, not the White House). And readers can debate all they’d like about USAID now that PEPFAR funding has resumed. It was created 60 years ago, so the White House could at least make the argument that US interests have evolved past that.
But the CFPB was created after the financial crisis, and consumer-finance scams have not become more rare.
In short: Something isn’t adding up. Maybe we can find more substance in the statement that the White House released on Monday.
Besides the usual Trumpian complaints about Woke and Warren, it cites a few things. First, it accuses the agency of having a “slush fund” that can be directed to Democrats. Second, it says the CFPB has too much data, and third, it says the CFPB’s recent forays into regulating wallet technology were an over-reach.
When it says “slush fund”, it looks like the statement is referencing the Civil Penalty Fund. Like the CFPB itself, that was created by Congress as part of Dodd-Frank. Presumably, if Congress created the fund, they could simply un-create it.
As far as we can tell, there is one tricky question in the use of the Civil Penalty Fund. The fund was set out — again, by law — to pay people who were ripped off, and whatever can’t be realistically paid out to Americans is meant to go to education and “financial literacy programs”.
Full disclosure: We’re not big fans of the financial-literacy grift. You can become financially literate simply by reading a free Financial Times blog called Alphaville! Or by taking advantage of the FT-backed FLIC charity campaign! Plus, there are only so many ways to tell people to buy and hold index funds, and none of them matter if the recipient of that message is a gambling addict.
It’s also very tough to figure out who exactly receives the financial literacy programme funding, which should raise an eyebrow or two. It can’t be that difficult to introduce a financial literacy effort through an existing non-profit, so well-connected non-profiteers could probably easily vie for some of that cash.
We would much prefer that these details be public, and are happy to let people quibble about who’s getting financial-literacy funding. It also seems important to point out that is how Congress intended the funding to be spent, whether or not we (or other lawmakers) think that’s a good idea.
The White House’s criticism links to an Investors’ Business Daily editorial from 2015. It lists a few groups that were approved for funding then (10 years ago), but it isn’t clear that any of them actually received any funding.
We will happily concede that it would be newsworthy if there was a situation like Mississippi’s recent scandal, when a Mississippi non-profit sent $1.1mn in no-show speaker fees to former NFL player Brett Favre from the state’s Temporary Assistance for Needy Families cash. Even so, that scandal didn’t lead to a restructuring or closure of TANF. State prosecutors simply sued the people involved.
So the Civil Penalty Fund concerns read a little bit like an anti-corruption crusade against classrooms full of teenagers bored silly by compound interest. We feel confident saying we’ve put it to bed as a potential reason to throw the whole agency out.
Now let’s move on to the second and third complaints: About data access and wallet technology.
The data argument cites a 2017 report from the US’s Office of Inspector General. OIG found that the agency didn’t always restrict access to data on enforcement actions to only the people working on the case at the time — in other words, the CFPB didn’t remove employees’ access quickly enough once they stopped working on a case. It also suggested the office use standardised naming conventions for files.
. . . but that’s it? As far as we know, the CFPB hasn’t mistakenly provided anyone with “read and write” access to the Treasury Department’s code database for a day, which is what happened with DOGE just this month, according to a signed affidavit from a Treasury official. It isn’t clear whether DOGE employee Marko Elez even knew he had that access, according to the affidavit, as Treasury officials are still reviewing his work.
It’s important to consider what the CFPB actually uses its data for. Besides fining payday lenders and for-profit education companies — again, not a popular group! — the CFPB sets an interest rate that’s needed for lenders to offer non-traditional mortgages, as Adam Levitin at CreditSlips points out.
And, interestingly, it now collects data from tech giants about their payment platforms, to learn more about their practices. From the agency’s former head Rohit Chopra:
Congress has tasked the CFPB with ensuring that markets for consumer financial products and services are fair, transparent, and competitive. To that end, it has authorized the CFPB to require participants in the marketplace to provide information that help the Bureau monitor risks to consumers and to publish aggregated findings that are in the public interest.
Little is known publicly about how Big Tech companies will exploit their payments platforms. For example, will the operators engage in invasive financial surveillance and combine the data they collect on consumers with their geolocation and browsing data? Will they in turn use this data to deepen behavioral advertising, engage in price discrimination, or sell to third parties?
This seems valid? Maybe we’re missing something. Elon Musk, if we are, please speak with us on the record. Send a tweet! 🙂
Also . . . if the CFPB has that Big Tech data, then Musk does too! As far as we know, the CFPB doesn’t have any ambitions of creating an “everything app” with a payments platform.
So there are thorny questions about data here! But not really about the CFPB’s access to it.
That brings us to the meatiest question of the whole bunch: The CFPB’s regulation of digital wallets.
Lest we forget, DOGEfather Musk has said repeatedly that he wants to turn X into a payments platform. And the CFPB ruled last year that large tech payments systems also fall under their umbrella.
Now, it’s very possible to argue that should’ve been done by Congress back when the Dodd-Frank Act was first passed in 2010. Digital-payments platforms weren’t as widely used then as they are today, however. The agency also regulates banks and credit card companies’ consumer-facing businesses, so it isn’t clear why tech firms’ consumer businesses should be exempt.
And notably, the CFPB went through a rulemaking process ahead of the change, instead of simply deciding as part of its enforcement process.
Why not go to Congress now? Readers may find it challenging to assume good faith on behalf of the executive branch, but maybe legislators are a better advocate?
Err, here’s a bill that was introduced in the House of Representatives this year that proposes eliminating the agency’s funding. The press release about it argues that the CFPB is “bypassing Congress’s power of the purse” by getting its funding from the Fed. Congress decided on that funding method, though, and conservative Supreme Court Justice Clarence Thomas just gave that practice the all-clear.
While plenty of bills go nowhere, this one doesn’t exactly broadcast a willing to negotiate in good faith. Few things in this story do.
And the push to dismantle an agency that fines payday lenders and sends money to Americans is an . . . interesting decision, politically speaking. Let’s see how it works out for them!
*It’s kind of tough to find the consent order for BloomTech’s lawsuit without using the Internet Archive. We’re not sure what happened, but it’s curious to see now that DOGE has turned its homepage into a 404 screen! Just asking questions here. You can find that document at this link if you’d like to take a look.
