The CFPB is effectively dead. Does this mean the U.S. Banking ecosystem is now a free-for-all? As a thought starter, here are a few ways innovation will be sparked and a few ways consumers will be harmed. Time to speculate! To set the stage, in its 15+ year existence, the CFPB returned $21B to consumers, killed junk fees, and reined in much of the Banking ecosystem’s wild side. But in doing such it was seen by many as too conservative and over-reaching. And instead of attempting to steer the organization, Trump’s team has decided to axe it altogether. The net result could be good and it could be bad. What we know is that the Banking ecosystem is entering a new era that’s will have to operate without a major watchdog! Possible Positives: 1) Innovation accelerates: With no CFPB red tape, products should launch faster than in the past and many more truly innovative experiments can be run. 2) Big Tech might enter the arena: Up until now, Big Tech has been held back from conducting obvious experiments. In this new era, Zuck and Musk might add products like payments to their platforms quickly. 3) AI adoption could scale fast: Many companies have been worried about how receptive the CFPB was going to be regarding the use of AI technology in core Banking products, so it’s possible that AI adoption will accelerate without the CFPB throttling progress. 4) Crypto firms could find Banking partners: The CFPB was one of many Regulatory organizations that made it difficult for traditional Banks to support the crypto ecosystem. In the post-CFPB era, Banks should be able to partner with well managed crypto companies without fear. Possible Negatives: 1) Junk fees and poorly designed products creep back: Without a watchdog, it’s easy to imagine sneaky charges and “gotcha” products returning to the market. We’re already seeing cases dropped against some very scammy companies. 2) Accountability takes a back seat: With the removal of the CFPB “stick” that was used to insure timeliness, clarity and accuracy, customer mistreatment and errors could pile up with no fix in sight. 3) Backlash looms: It’s entirely possible that the post-CFPB environment increases complaints and damages so much that a scammed public demands a CFPB 2.0 which ironically could operate with even more conservatism than CFPB 1.0 did. What we know is that the CFPB is now effectively gone which puts the Banking ecosystem at a crossroads. Will it result in innovation unleashed or consumer chaos? Which will win? Drop your take below….let’s speculate together!
There is a reason Congress moved certain consumer protection functions to the CFPB from existing regulatory bodies. To argue that the FDIC, Fed, other federal agencies and states have, can and will take up and be effective in the specific role of consumer protection requires amnesia or willful nescience. How many of us remember or are otherwise knowledgeable about the contributing factors leading to the events of 2007-2008? If not, read The Big Short. Fact is, the “market” needed federal intervention to stave off complete economic meltdown. Fact is, those incumbent federal agencies didn’t adequately protect consumers because consumer protection wasn’t their primary function. Thus consumer protection was elevated and given priority under Dodd-Frank. The states also had regulatory authority prior to the CFPB. But companies can domicile in states that minimize protections and allow usurious rates and fees. The CFPB filled a hole that, frankly, certain interests didn’t and don’t want filled. Further, given the administration’s ideological and political hostility to regulation, I’ll believe other agencies re-establishing what minimal focus they did have when I see it.
I appreciate your perspective Frank Rotman obviously you have a front row seat, my only pushback is that the CFPB is why banks were not innovating faster, sorry but having met many bankers over the years, it is rarely technology or regulation that prevents bank innovation. Just my $0.02 but I am guessing that we will see the CFPB re-emerge in about 4 years after consumers get screwed over for the next 3 years by bad actors. Sorry Sheela Ursal but not sure any business let alone banks will "self-regulate."
Skeptical that the CFPB played any role at all, positively or negatively, with respect to crypto. But I think you may have left off the most likely reaction; state AGs and state banking regulators (and their legislatures) begin to flex their authority in a much more aggressive way. Ditto plaintiff’s lawyers.
I think the states will play a bigger role, which will impact go to market strategy if rule making shifts from national to state level. Finding the right balance with protecting consumers and businesses from bad actors while encouraging and supporting thoughtful innovation is the right answer
It's hard to imagine that the underserved population won't pay the price as the CFPB goes away. We will see a reemergence of payday loans, overly harsh penalty fees, aggressive collection practices...
Without sound regulation, banks will fail. We know cowboy execs will think it is their day to shine. The poor consumer. Yes CFPB overreached, but much good was also done. The old saying, “be careful what you wish for” applies here.
“Innovation” to what end? Most of what I’ve seen are innovative ways to charge more to consumers , or costs savings that go to shareholders and not to reducing costs to consumers.
Regulation is needed. Period. Was the CFPB a pain in the a**? Yeah. Did it hinder innovation? Yeah. Does it deserve to be slashed? No. Not without a replacement. Poor decision.
The outcome will likely depend on the industry’s ability to self-regulate and the development of new structures that safeguard consumers. If financial institutions and new fintech players can innovate responsibly, we might see positive change. However, if market forces lead to unchecked practices, it could create significant challenges for consumers. The result will likely be a balance—where the scale tips one way or the other depending on how regulatory bodies or new consumer protection measures evolve in the absence of the CFPB. The key question is whether the market and businesses can rise to the challenge of innovation and consumer protection simultaneously. We kind of already know the answer to how well innovation left to itself will rise to the challenge of consumer protection, don't we.
Financial Services Executive | Risk Management, Consumer Compliance & Regulatory Expert | Villanova Wildcat | Pepperdine Wave | USMC Leatherneck
6dCFPB responsibilities were already a part of what the Fed, OCC, FDIC and formally the OTS had as part of their exam protocols prior to CFPB coming into existence. Specifically, CFPB exam expectations for a consumer compliance exam were almost completely duplicative with what Fed exams already focused on. The Fed and OCC have always focused on consumer-deceptive products as well. As long as the other agencies re-emphasize their focus on consumer compliance, the industry for regulated entities should not miss a beat. Non-regulated entities (FinTech’s) on the other hand present the issue because the Fed, OCC and FDIC have no jurisdication over them unless they are chartered. Most of which are not. This mostly leaves consuner compliance supervision up to the state agencies in which the FinTech is licensed. And that, is a completely different ballgame.