CFPB Grinds to a Halt: Impacts on Industry

U.S. Department of the Treasury Secretary Scott Bessent was appointed as acting director of the Consumer Financial Protection Bureau (CFPB or the Bureau) on Feb. 3, 2025. In his capacity as acting director, Bessent reportedly issued the following orders to CFPB staff:

• not to approve or issue any proposed or final rules of formal or informal guidance
• suspend the effective dates of all final rules that have been issued or published but have not yet become effective
• not to commence, take additional investigative activities related to or settle enforcement actions
• not to issue public communications of any type, including publication of research papers
• not to approve or execute any material agreements, including those related to employee matters of contractors
• not to make or approve filings or appearances by the Bureau in any litigation, other than to seek a pause to proceedings

Russell Vought then was appointed as acting director of the CFPB on Feb. 7, 2025, replacing Bessent. In addition to expanding the previous directives, Vought reportedly directed CFPB staff to:

• not commence, take additional investigative activities related to or settle enforcement actions
• not to open any new investigations and cease any pending investigations
• cease all supervision and examination activity
• cease all stakeholder engagement

President Donald Trump nominated Jonathan McKernan as CFPB director on Feb. 10, 2025. McKernan, a former board member of the Federal Deposit Insurance Corp. (FDIC) and senior counsel for policy at the Federal Housing Finance Agency, has advocated for stronger oversight of large-asset managers due to their potential influence over the management and strategy of domestic banks. Some of his views were supported by former FDIC board member Rohit Chopra, the previous CFPB director. On Feb. 27, 2025, the U.S. Senate Committee on Banking, Housing, and Urban Affairs will hold a nomination hearing for McKernan to become the CFPB director.

Remote Work and Cessation of Tasks

Vought notified the Federal Reserve Board on Feb. 8, 2025, that the CFPB requested no funding for the third quarter of fiscal year (FY) 2025, indicating a potential pause in operations. Unlike other federal agencies, the CFPB is funded by the Federal Reserve and not through congressional appropriation. The CFPB requests funds quarterly from the Federal Reserve, which transfers funds to the CFPB based on its director's determination of need, subject to a cap set by a statutory formula. Some other financial regulators, such as the Office of the Comptroller of the Currency (OCC), FDIC and Federal Reserve, are also funded outside of the congressional appropriations process, but those agencies generally cover all or part of their costs with funds collected as fees or assessments from regulated entities or derived from other investments.

CFPB staff have purportedly been directed to work remotely as of Feb. 10, 2025. Further, Vought instructed most CFPB staff to not perform any work tasks.

The CFPB on Feb. 11, 2025, reportedly canceled in excess of $100 million in vendor contracts to cut costs. Among the cancellations were 102 enforcement-related contracts, 33 related to the CFPB director's office and 16 supervision unit-related contracts.

On the same day, the CFPB assistant directors of Supervision and Enforcement reportedly sent emails to their teams announcing their resignations. Both referenced the cessation orders as motivation for their resignations.

The signage marking the CFPB headquarters was removed on Feb. 20, 2025, visibly reflecting the efforts to downsize and streamline the CFPB's operations and resources.

Legal Challenges to Recent Operational Changes

Several lawsuits have already been lodged due to the CFPB's recent actions. On Feb. 9, 2025, the National Treasury Employees Union (NTEU) filed a lawsuit challenging Vought's actions to "shut down" the CFPB.¹ The NTEU initially requested a temporary restraining order, arguing that Vought's actions are unconstitutional and violate the congressional mandate outlined in the Dodd-Frank Wall Street Reform and Consumer Protection Act. On Feb. 14, 2025, the U.S. District Court for the District of Columbia issued several directives that maintain the status quo until resolution of the plaintiffs' motion, which has been deemed a motion for a preliminary injunction with the parties' consent. The directives included that the CFPB and Vought cannot do the following:

• delete, destroy, remove or impair any data or other records covered by the Federal Records Act
• terminate any CFPB employee, except for cause related to the specific employee's performance or conduct
• issue notices of reduction in force to any CFPB employee
• transfer money from the CFPB's reserve funds
• relinquish control or ownership of these funds
• return any money to the Federal Reserve or the Treasury Department
• take any steps to reduce the amount of money available to the CFPB to below the amount available as of 4 p.m. ET on Feb. 14, 2025, except to satisfy ordinary operating obligations

The court has scheduled a hearing on the plaintiffs' motion for a preliminary injunction for March 3, 2025. After the Feb. 14 court order, Vought placed most CFPB staff on administrative leave indefinitely.

The NTEU also filed another lawsuit contesting the directive to freeze the CFPB's operations and refusal to accept its funding.² The NTEU argued that President Trump improperly appointed Vought under the Federal Vacancies Reform Act. This act allows for temporary appointment without the advice and consent of the Senate when the prior holder of a Senate-confirmed office "dies, resigns, or is otherwise unable to perform the functions and duties of the office."³ However, the NTEU contended that none of the requisite situations exists here such that President Trump could appoint Vought without the advice and consent of the Senate. 

The City of Baltimore and Economic Action Maryland Fund initiated their own lawsuit to challenge the recent changes.⁴ In their lawsuit, they assert that the Trump Administration, acting through "Defendants CFPB and its Acting Director, Russell Vought," is effectively defunding the CFPB, leaving it incapable of carrying out its duties under federal law. They requested the court find that "defunding of the CFPB to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" in violation of the Administrative Procedure Act (APA). The parties preliminarily agreed to a preliminary injunction, pending approval by the court, to keep the CFPB from transferring funds until Feb. 28, 2025. On Feb. 20, 2025, the defendants filed their opposition to the motion for preliminary injunction, arguing that the claims are unripe. The defendants argued that the plaintiffs cannot bring a claim under the APA because they were not challenging any agency action. Notably, the motion references a letter from Vought to the Federal Reserve in which he states that "[t]he Bureau's new leadership will run a substantially more streamlined and efficient bureau," indicating that the CFPB will continue. The court has scheduled its ruling for the pending motion for preliminary injunction on Feb. 26, 2025.

Further, attorneys general from California and 21 other states, as well as the District of Columbia, filed an amicus brief in the aforementioned Baltimore case, arguing that the Trump Administration is seeking to defund and shut down the CFPB. Allowing such efforts to succeed, the attorneys general argue, would cause states to lose the "CFPB's expertise and resources that can be invaluable in ongoing matters that protect their residents." The attorneys general also filed an amicus brief in the second NTEU lawsuit presenting nearly identical arguments.

Implications for the Financial Services Industry

With the understanding that new developments continue to emerge, the impact of these changes on proposed and recently finalized regulations and guidance is as follows.

Final Rules Are Effective and Compliance Is Required. The recent instructions to CFPB staff impact only proposed or recently finalized regulations and guidance. Covered entities must still comply with rules that are both effective and for which compliance dates have elapsed.

Impact on Final Rules Not Yet Effective. For finalized rules whose effective dates have not arrived yet, it remains uncertain what changes may occur or whether these rules will take effect at all. A court is likely to determine that the statements made by the acting director alone are legally insufficient to suspend, delay or cancel any recently finalized rule that has not yet taken effect without further action. Any modifications to these final rules will need to be conducted through notice and comment procedures under the APA.

Nonetheless, adjusting the effective date may be more feasible if a rule has not yet been codified into the Code of Federal Regulations. In certain cases, for example, if the rule is subject to pending judicial review, the agency may have the ability to immediately postpone the effective date by issuing an interim final rule. This interim final rule would solicit public comment, but the agency would not need to wait for the comment period to close before changing the effective date. This could potentially impact the Fair Credit Reporting Act (FCRA) medical debt rule and overdraft services rule, among others, some of which are also currently subject to litigation challenges (as outlined below).

The CFPB can repeal its interpretive rules without following the formal APA notice and comment procedures. However, the CFPB cannot repeal substantive rules that were promulgated through formal APA notice and comment processes in this manner.

Impact on Final Rules That Are Effective. For rules already in effect but not yet requiring compliance (e.g., Payday Lending Rule, Dodd-Frank Act Section 1033 Personal Financial Data Rights Rule, Dodd-Frank Section 1071 Small Business Data Collection Rule), the CFPB must take action through notice and comment rulemaking to change the compliance date.

Importantly, a pause at the CFPB is likely to only increase enforcement at the state level. State attorneys general and state regulators, along with prudential regulators such as the FDIC, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System and National Credit Union Administration, can enforce federal consumer financial protection laws independent of the CFPB.

Due to the stop-work order, work on proposed but unfinalized rules will halt. Formal notice in the Federal Register is needed to pause or suspend comment period deadlines, or the CFPB may allow them to end without further action.

Impact on Final Rules Subject to Litigation. Some recently finalized rules are also under litigation, and any attempts to withdraw them must comply with the APA. These include litigation on the Unfair, Deceptive, or Abusive Acts or Practices Act's examination manual, as well as credit card late fee, FCRA medical debt and overdraft services.

• Though the discretion of the involved courts will take precedence, it is understood that the CFPB is requesting a "pause" in each of these cases for potential agency action review.
• A pause has been issued in a U.S. Court of Appeals for the Fifth Circuit case challenging the CFPB's Small Business Lending Rule.
• Notably, a pause does not preclude third parties from defending a lawsuit even if the CFPB itself does not, although court approval is generally required for such interventions.

Impact of Congressional Review Act Recently Finalized Rules. Republican members of the House of Representatives and Senate are already utilizing the Congressional Review Act (CRA) to void rules finalized under the Biden Administration. The CRA permits the president to rescind rules promulgated by executive agencies within the 60 days prior to taking office. On Feb. 13, 2025, the members introduced a joint resolution under the CRA to nullify the CFPB's final rule related to overdraft lending fees. The rule was finalized in December 2024 and restricted the amount that banks and credit unions with more than $10 billion in assets may charge for overdraft services. Other rules finalized in the waning hours of the Biden Administration could be under threat as well.

How We Can Help

Holland & Knight's Consumer Protection Defense and Compliance Team includes a robust CFPB practice, with experienced attorneys who are recognized thought leaders in consumer protection and financial services issues, covering all industries and topics. From representing dozens of companies and individuals in federal and state investigations to compliance and risk management counseling, the firm's practice includes regulatory, compliance, litigation, investigation and transactional work.

Holland & Knight's Financial Services Regulatory Team provides compliance and regulatory advice regarding state and federal financial services issues to banks non-bank financial services companies, credit card issuers, FinTech industry members and money transmitters, among others.

For more information or questions about the specific impact that these developments may have on your company, please contact the authors or another member of the Consumer Protection Defense and Compliance Team.

Notes

¹ Nat'l Treasury Employees Union v. Vought, No. 1:25-cv-381.

² Nat'l Treasury Employees Union v. Vought, No. 25-cv-381-ABJ.

³ 5 U.S.C. § 3345(a).

⁴ Mayor and City Council of Baltimore v. CFPB, No. 1:25-cv-00458-ABA.