The Trump administration's rapid dismantling of the U.S. consumer protection watchdog will have broad implications for consumers with credit cards, mortgages and bank accounts, leaving Americans with little recourse if they feel they are unfairly treated by their financial institutions, experts say.
The U.S. Consumer Financial Protection Bureau was defanged over the weekend by Trump administration appointees, after Russell Vought, the agency's acting chief, ordered the staff to halt work and temporarily locked the doors to its headquarters.
As a result, the job of policing a wide range of financial firms for compliance with several consumer protection laws has functionally disappeared, one that has been a mainstay since the agency was created by the U.S. Congress in 2010 in response to the 2008 financial crisis.
"The Trump administration just hung out a sign saying, 'Cops on break' in the financial services sector," said Aaron Klein, a senior fellow at the Brookings Institution think tank, who was at the Treasury Department when the law creating the CFPB was drafted.
Since its inception, Republicans and the financial industry have complained that the agency is too powerful and lacks sufficient oversight. Those complaints escalated under its most recent director, Rohit Chopra, who aggressively built cases against financial firms and quickly adopted policies curbing their activities.
On Monday, the White House criticized the agency as a "woke, weaponized arm of the bureaucracy" that would be reined in immediately.
The White House did not immediately respond to a request for additional comment.
The CFPB enforces a spate of consumer financial protection laws. Those include laws that safeguard active-duty military members from predatory lending practices, protect Americans from inaccurate credit billing and prohibit creditors from discriminating against applicants based on their religion or race.
Beyond enforcing existing laws, the CFPB has also imposed limits on overdraft fees, banned medical debt from being listed on credit reports and promulgated rules to prevent brokers from selling consumers' sensitive data. The agency also collects consumer complaints about financial companies and provides financial education services.
Eliminating the agency -- or even handicapping it -- would mean that no one would be policing the nation's largest financial firms to ensure that they are complying with those rules, according to experts. The CFPB enforces federal consumer financial laws for banks and other depository institutions with total assets of more than $10 billion.
"The bureau is making it clear that it won't be enforcing rules," said Ian Katz, managing director of policy research firm Capital Alpha Partners, in a note.
'A CHAIN EFFECT'
Prior to the financial crisis, the job of enforcing consumer protection laws fell to bank regulators as part of their ongoing supervisory work. Congress decided after the financial crisis to create a new agency and charge it with that sole responsibility.
One of the CFPB's more prominent projects is its consumer complaint database, where Americans have the ability to report issues they are experiencing with financial companies. The agency in turn uses those complaints to compel companies to provide redress to consumers.
But without any staff to process those complaints, that redress is likely on pause, according to one former agency official.
"This doesn't exactly turn the clock back to 2010; in many ways it's worse than that," said Casey Jennings, a partner at Seward & Kissel and a former CFPB attorney. "This is particularly pernicious because they do not appear to be moving forward with some formal disbanding of the agency. It will exist, but it will do nothing."
Dennis Kelleher, president and CEO of Better Markets, which advocates for stricter government oversight of the financial sector, said that low-income consumers will likely feel the lack of CFPB protections the most.
For example, new CFPB rules imposing protections on payday loans -- typically short-term, high interest loans -- had been set to take effect in March. According to the Financial Health Network, a nonprofit that specializes in underbanked consumers, a majority of payday loan borrowers in the U.S. earn less than $30,000 per year.
And Kelleher pointed out that financial strain among poorer people can quickly escalate as they have smaller safety nets to start with.
"There's a chain effect of sorts, especially among lower-income borrowers," said Kelleher.
States have various consumer protection laws on the books, but those laws often vary state by state and are enforced in different ways.
"This kind of balkanizes enforcement," said Jennings. "Previously, the states had deferred to the CFPB as a federal regulator and tried to coordinate their activity."
Banks and credit unions are still closely regulated by several other watchdogs, while many nonbanks, like mortgage lenders and fintech companies, do not have a federal regulator beyond the CFPB.
"This also creates uncertainty for businesses who were used to operating under a particular regulatory environment and they may get undercut by competitors with lower ethics that are willing to act more ruthlessly which also doesn't bode well for consumers," said David Super, Carmack Waterhouse professor of law and economics at Georgetown University's law school.
