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President Donald Trump’s attempt Monday to shut down activity at the Consumer Financial Protection Bureau is raising questions about what it means for local financial institutions.
Treasury Secretary Scott Bessent, who Trump also appointed as interim head of the CFPB, has moved to effectively halt the agency in its tracks, while presidential advisor Elon Musk has called to “Delete CFPB” in a post on his X social media platform.
First reported by Bloomberg Law, an internal email to staff members instructed CFPB employees to immediately cease the majority of their work, including issuing or approving proposed or final rules or guidance and suspending the effective dates of all final rules that have been issued but have not yet become effective.
Most notably for Massachusetts banks, the email instructed staffers not to commence or settle enforcement actions. It also barred them from issuing any public communications of any type, including research papers.
The move comes just days after Musk’s Department of Government Efficiency group moved to close down the U.S. Agency for International Development despite congressionally-approved funding, raising the specter a similar move might be in the works for he CFPB. The agency has long been a target of criticism among conservatives and some industry groups.
Moves like these are likely unconstitutional, legal experts say. In theory, Congress would have to pass laws disestablishing either agency, and existing laws don’t clearly give Trump the power to not spend money Congress has directed be spent in a case like this.
Matthew Hanaghan, a banking attorney at Boston law firm Nutter, told Banker & Tradesman that despite the move by Bessent, local banks would be well-advised to keep up normal compliance activities spelled out under the Dodd-Frank Wall Street Reform and Consumer Protection Act that created the bureau.
“Dodd-Frank moved a great deal of consumer protection regulation from various other agencies to the authority of the CFPB to write rules like Truth in Lending and ECOA,” he said in an interview. “Those regulations exist, haven’t been repealed and banks should continue to comply.”
One thing is certain, he said, don’t expect any new rules out of the agency for the time being.
“I don’t know that we can predict with any certainty whether there will be any significant changes to the existing regulatory regime. I think we can expect rules under development at the CFPB to be paused, and I wouldn’t be surprised if all pending rulemaking essentially grinds to a halt,” Hanaghan said.
Primarily larger financial institutions will be affected by any attempt to close the regulator down, Hanaghan said.
“Community banks, while they’re subject to many of the consumer protection rules that are overseen by the CFPB aren’t directly examined by the CFPB,” he said. “Their consumer compliance exams are conducted by their federal functional regulator – the Federal Reserve for member banks, the FDIC for non-member banks, for national banks and federal savings associations, the OCC. So for for community banks, there won’t be much of an immediate impact.”
