CFPB to Proceed with Mass Layoffs 

On August 15^th, the U.S Court of Appeals for D.C. lifted an injunction that prevented the Consumer Financial Protection Bureau (CFPB) from pursuing mass layoffs. The ruling will now allow the CFPB to proceed with laying off 80% of its workforce. The court ruling represents a significant victory in the direction of deregulation after years of excessive and abusive enforcement actions overseen by the Biden administration. The move is a welcome departure from the unchecked and unrestrained expansion of the agency’s meddling in the financial services sphere.  

The CFPB was created by Dodd-Frank and is notable for its expansive interpretations of statute. Under the CFPB, several rulemaking proposals were promulgated that sought to expand the agency’s purview of bank operations and interfere with free market mechanisms by implementing price controls. The CFPB focused on racking up compliance costs and burdening small businesses and financial institutions alike in the name of consumer protection. The planned reduction in its workforce from 1700 employees to 200, however, will ensure the agency stays on course to adhere to its statutorily authorized duties.  

The latest development in reducing the bureaucratic bloat at the agency represents a healthy step toward restoring balance in financial regulation. It reflects an understanding that the CFPB’s staffing levels, built up to fuel years of aggressive rulemaking and litigation, are unnecessary. The decision is not merely a fiscal win, but is an affirmation of the Administrative Procedure Act.  

Rules such as Section 1071 sought to surveil small bank lending and collect data on the gender and race of loan applicants in a bid to potentially direct capital allocation toward minority-owned businesses in the name of DEI objectives. Other rules, such as the overdraft rule, would have capped what financial institutions could charge on overdraft fees for depositors without giving a reasonable explanation for setting a price control on overdraft credit.  

The CFPB has also been documented in bullying firms conducting business with politically disfavored industries such as firearms. Their harassment was clearly intended to coerce businesses to sever ties with certain industries. Under Director Vought’s leadership, the CFPB has largely reversed course and has begun withdrawing from its heavy-handed approach to consumer regulation.  

The Section 1033 rule, promulgated under the Biden administration, would have set price controls by mandating banks to freely provide data access to third party data aggregators, forcing bank customers to shoulder the costs incurred by users of third-party applications. Despite price controls being found nowhere in the original statute, the CFPB took full advantage of expanding its interpretation of the law to dilute and expand the original statutory definition of covered persons to data brokers.  

Reducing staff will rein in the Bureau’s ability to micromanage and politicize credit markets. Fewer bureaucrats will create fewer opportunities for arbitrary enforcement action. It will also push the agency to prioritize its limited resources to limit efforts aiming to shape the financial sector into a public utility. 

The CFPB’s proponents argue that this move will worsen consumer protections. That assertion is wrong. The greatest threat to consumers is excessive regulation. Too many rules that stifle credit access, suppress innovation, and raise costs will invariably lower consumer welfare. This dynamic played out with the Durbin Amendment’s impact on interchange fees, which slashed bank revenue and led to higher fees on checking accounts. Similar damage would have occurred had the Biden administration’s 1033 rule moved forward in its proposed form. 

By scaling down staff, the CFPB is finally taking action to impose self-discipline and restore accountability to an agency that has gone unchecked for far too long.