The Trump administration’s quest to dismantle the Consumer Financial Protection Bureau could soon get an assist from Republicans in Congress.
As part of their sprawling tax and budget bill, House GOP lawmakers are considering a measure that would dramatically cut the CFPB’s annual funding, likely leaving behind just a bare-bones workforce at the watchdog agency responsible for policing how large banks, mortgage lenders, and other financial services companies treat their customers.
The legislation is set for a markup hearing before the House Financial Services Committee on Wednesday.
Unlike most federal agencies, which receive annual appropriations from Congress, the CFPB is funded primarily through transfers from the Federal Reserve. This year, that money was capped at $823 million. The new House legislation would effectively lower the ceiling by 70% to $249 million for this year, then increase it annually to account for inflation.
The CFPB typically asks for less money than the cap would allow. Still, the new formula would amount to a massive budget reduction. Last year, for instance, the agency requested $729 million from the Fed.
The CFPB was created in the wake of the 2008 financial meltdown to shield Americans from the sorts of predatory lending practices and outright fraud that many believed had helped fuel the national mortgage crisis. It took over the consumer protection responsibilities previously spread thinly across multiple regulators, including the Fed.
But the agency has long been a magnet for conservatives’ ire; Republicans have accused it of harassing companies with overly aggressive enforcement and reaching beyond its legal authority.
Since the president’s inauguration, Trump officials have spent months attempting to eliminate the vast majority of the CFPB’s staff, only to find their efforts frustrated in court. The agency was an early target for Elon Musk’s Department of Government Efficiency, which attempted to rush through a round of mass layoffs that were blocked by a federal judge in February.
Acting Director Russell Vought later tried to push ahead with a more formal reduction in force that would have cut the bureau’s headcount by almost 90%. But a federal appeals court in Washington, D.C., temporarily halted that plan on Monday in order to let litigation over the legality of the layoffs play out. A union representing CFPB employees has argued that the cuts would make it impossible for the agency to carry out its legally required duties.
Asked for an explanation of the funding cuts, a spokesman for the Financial Services Committee said they believed the new cap would be enough for the CFPB “to carry out their statutory authorities.”
Julie Margetta Morgan, who served as a CFPB official under the Biden administration, said the GOP’s budget cuts would be “the equivalent of shutting down the agency entirely” because they would leave it without bare minimum resources to supervise companies and bring enforcement actions when they break consumer laws.
“They’ve been trying to accomplish the scaling back of this agency by whatever means necessary, and this is kind of step 10 in that playbook,” Morgan said.
The CFPB’s funding formula was set when it was created as part of the 2010 Dodd-Frank Act. It set the agency’s maximum funding cap at 12% of the Federal Reserve’s revenue in 2009, with an automatic annual increase to account for the increasing cost of hiring. The structure was intended to insulate the bureau from political interference, by sparing it from the yearly ups and downs of the appropriations process.
The new GOP formula would cut the cap to just 5% of the Federal Reserve’s revenue in 2009, then increase it for inflation starting next year.
If the budget cut passes, it may leave the federal government spending less on consumer protection than in the years before the CFPB was created. The original funding cap, which came out to about $600 million in 2013, was intended to approximate how much the Federal Reserve alone dedicated to consumer protection prior to the bureau’s existence, lawyers for the Biden administration told the Supreme Court in 2023.
The GOP’s bill could also limit the CFPB’s ability to compensate Americans who fall prey to financial fraud by companies that go bankrupt. That’s because it would force the agency to transfer extra money it collects from large fines directly to the Treasury, instead of keeping it in the reserve fund it currently uses for payouts to victims when firms are out of cash.
“Not only are they trying to reduce the budget, but they are trying to take a resource from people who have been harmed,” said Adam Rust, director of financial services at the Consumer Federation of America. “It’s just a black-and-white case of making life easier for law breakers and making the rest of us more vulnerable as a result.”
Jordan Weissmann is a Senior Reporter at Yahoo Finance.
