CFPB Looks Certain To Survive As Judge Pushes Back On Trump Cuts

A federal judge struck a blow to the Trump administration’s plans to reform a key mortgage industry watchdog at the weekend, ordering a halt to efforts to gut the agency.

Judge Amy Berman Jackson ruled in favor of a Consumer Financial Protection Bureau (CFPB) employee union that had sued acting director Russell Vought last month to prevent mass layoffs at the bureau, and reversed his order for a stop to all the agency’s work.

Berman said Friday administration officials “shall not terminate any CFPB employee, except for cause related to the individual employee’s performance or conduct; and defendants shall not issue any notice of reduction-in-force to any CFPB employee.”

The decision marks a fresh twist in a tale that’s been closely watched across the US mortgage industry, with little clarity yet on whether a new regulatory framework will emerge – and what rules, if any, will fall by the wayside.

But while Berman’s decision appeared to strike a blow in favor of the CFPB’s existing framework, few in the industry had expected the bureau would really face permanent “deletion” as Elon Musk, a key architect of efforts to wind down various government agencies, had advocated.

That much was evident as soon as Jonathan McKernan, the Trump administration’s pick to head the bureau, was grilled at his Senate confirmation hearing in February, according to mortgage lawyer Peter Idziak (pictured top) of Polunsky Beitel Green.

McKernan said he believed the CFPB had overstepped its mark in recent years – but indicated the bureau had a future and said it would “enhance excellence and accountability” if he was confirmed.

“In his confirmation, McKernan basically said ‘We’re not going to delete the bureau – it will continue its statutorily required work but it will be a smaller, more efficient bureau targeted at what they consider to be actual consumer harm,” Idziak told Mortgage Professional America.

“So for our industry, the biggest worry was that they would delete the bureau or essentially carve it out – that all of its responsibilities and rules and regulations would still be in place but frozen in time. And from the industry standpoint, that was not ideal.”

Is the CFPB remaining in place a good outcome for the industry?

Both McKernan’s hearing, and the recent ruling against the CFPB, appear to have spurred confidence that the agency will remain in place for the foreseeable future – a positive development for the mortgage industry, even if it would like to see reforms enacted at the bureau.

“There are rules that the industry would like to see revised and updated or rescinded,” Idziak said. “There are certain functions that the bureau engages in and it publishes certain data that the industry relies on.

“So I think there’s a sense of relief in the industry that there’s going to be certainty going forward and a bit of positivity. Jonathan McKernan is someone who’s focused on legitimate consumer harms, not like [former director] Rohit Chopra trying to engineer a mortgage market that in [the CFPB’s] mind was more equitable and inclusive.”

No prospect of the mortgage market becoming the Wild Wild West

The latest ruling against the Trump administration’s scaling back of the CFPB also vindicated mortgage brokerages and lenders that have taken a calm outlook on those actions and stuck to a business-as-usual approach despite enforcement action and various lawsuits being thrown out.

“With the exception of some actions that Congress has taken with overdraft fees, every regulation that was enforced on the last day of the Biden administration is essentially still enforced today,” Idziak said. “So just because there’s been a pause on examination and supervision, it doesn’t mean that the underlying rules of the road have changed.

“Let’s say you have a Democratic administration that comes in in less than four years. The look-back period in the past has been five to seven years, so there’s some risk that if you’re a lender that decides ‘Well, I’m going to be a little bit more aggressive here because I think the regulators aren’t on duty,’ that can be problematic for you later.

“My guess would be that if that does happen, then a Bureau under a Democratic administration would probably look extra closely at that behavior and probably treat it extra harshly.”

By Fergal McAlinden