Trump’s Reckless Gutting of the Consumer Financial Protection Bureau

Courts have repeatedly intervened to prevent Vought from carrying out mass layoffs without congressional approval. When he tried to shut down the agency by refusing to apply for funding, they blocked him too. (The CFPB draws its budget from the Federal Reserve rather than taxpayer appropriations — a structure designed to safeguard its independence.) “Russell Vought illegally fired me twice,” Anne Romatowski, an artificial intelligence expert who joined the bureau in 2022, said at the protest. She had been diagnosed with breast cancer the same week Vought began laying off staff. A preliminary injunction allowed her to maintain her health care plan while she received radiation and chemotherapy.

On the campaign trail, Trump promised to lower food and gasoline prices, and denounced what he called the “Democratic inflation disaster.” Members of his party demanded an end to bank bailouts, such as those carried out after the 2008 crisis, and warned of a “financialized economy” increasingly dominated by hedge funds and private equity. Since affordability and fairness are a priority, “it’s really stupid to go after the CFPB,” Alexis Goldstein, a former crypto expert there, told me. The office was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, landmark bipartisan legislation intended to “promote the financial stability of the United States” in the wake of the Great Recession. It enforces more than twenty laws – the Fair Debt Collection Practices Act, the Truth in Lending Act, the Electronic Funds Transfer Act, the Mortgage Disclosure Act, the Military Lending Act – and has broad discretion to investigate “unfair, deceptive, or abusive acts and practices.” He recovered twenty-one billion dollars in direct consumer aid and five billion dollars in civil penalties from a wide range of companies. Millions of Americans asked him for help; Just by filing a complaint online, they avoided foreclosure and had their student loans canceled.

“Rawk! You snowflakes aren’t brave enough to debate me in the marketplace of ideas. Rawk!”

Ellie Black cartoon

These individual complaints guide the systemic work of the Office. The company investigated Meta for mining consumer data for targeted advertising purposes, capped late fees on credit cards at eight dollars a month and sued online lender MoneyLion for overcharging members of the armed forces. It conducts prophylactic audits – called supervisory reviews – of the nation’s largest banks and, importantly, other financial companies, such as mortgage servicing companies, auto lenders, credit card companies, medical debt collectors, payday lenders, debt repair companies and “fintech” companies that enable mobile banking, payments and credit. The CFPB is the only federal entity authorized to supervise these “non-banks”.

But now, under Vought’s leadership, the CFPB has become a “zombie regulator,” Seth Frotman, its former general counsel, told me. (Vought declined my interview request.) The office has dropped at least forty lawsuits and other enforcement actions, valued at more than $3 billion. It stopped overseeing the compliance of big banks and fintechs and made it harder to file complaints against credit reporting agencies. The timing of this retreat could not be worse. The Federal Reserve has warned that delinquencies on credit cards and auto loans have reached “levels not seen since the Great Financial Crisis.” One in five student loan borrowers are in default. Total consumer debt has reached a record high of nearly nineteen trillion dollars; the median household is eighty thousand dollars underwater. The economy is shaped like a “K,” with the rich getting richer and the poor slipping, mired in the feeling, if not the reality, of a recession — what economics writer Kyla Scanlon has called a “vibration.” Every day, new scams related to cryptocurrencies and wire transfers are reported. “You can get away from consumer financial regulation, and it’s not a problem until something explodes — and then there’s contagion,” Neale Mahoney, an economist at Stanford, told me. “We will only fully know the damage when it is too late.”

From its inception, the CFPB tried to distinguish itself from other financial regulators—the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency—that worked behind the scenes to ensure that banks remained solvent but meant little to ordinary people. The office was created by Senator Elizabeth Warren, a bankruptcy expert who was then on leave from Harvard Law School. The first meetings took place in the halls of the Treasury Department, then in a windowless room known as “the cave.” The CFPB recruited lawyers from big firms, coders from Silicon Valley, Ivy League economists, and hedge fund veterans, many of whom had never held a government job. Jasmine Hardy joined the company in 2011 as an examiner in the supervisory unit and later became vice president of the employee union. During the financial crisis, she had been a compliance manager at Morgan Stanley and watched Lehman Brothers employees lugging boxes down Seventh Avenue after that company collapsed. Some nine million Americans would lose their jobs and there would be nearly four million foreclosures. According to her, the Dodd-Frank Act was a necessary response. “I have had family and friends who consider themselves conservative and who believe in the mission of the CFPB,” she told me.