Chris Willis and Joe Reilly discuss the events of the first two months of the new Trump administration, including significant changes at the Consumer Financial Protection Bureau (CFPB).
In this episode of The Consumer Finance Podcast, Chris Willis is joined by Joe Reilly, a partner in Troutman Pepper Locke's Consumer Financial Services Practice Group, to discuss the events of the first two months of the new Trump administration. They provide a comprehensive overview of the current status of the Consumer Financial Protection Bureau (CFPB), its litigation matters, and its rulemaking efforts. Chris and Joe discuss the significant changes at the CFPB, including the appointment of new acting directors, the impact of the administration's directives on CFPB employees, and the ensuing legal battles. They also explore the status of key rulemakings, such as the 1071 Small Business Data Collection Rule, the overdraft rule, and the credit card late fee rule, offering insights into the potential future of these regulations. Tune in to stay informed about the latest developments in consumer financial services regulation and what they mean for the industry.
The Consumer Finance Podcast — Early Days of the Trump Administration: Impact on the CFPB
Host: Chris Willis
Guest: Joe Reilly
Date Aired: March 27, 2025
Chris Willis:
Welcome to The Consumer Finance Podcast. I'm Chris Willis, the co-leader of Troutman Pepper Locke’s Consumer Financial Services Regulatory Practice. Today, my partner Joe Reilly and I are going to be recapping the events of the first two months of the new Trump administration and talking about the current status of the CFPB, its litigation matters, and its rulemaking efforts.
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Now, as I said today, we're going to be recapping a very action-packed first two months of the new Trump administration, with the particular focus on what's been going on with the CFPB, its rulemaking and its enforcement activity. Joining me for that discussion is my partner, Joe Reilly. Joe, thanks for being on the podcast to talk with me about this today.
Joe Reilly:
Of course, Chris. Thanks for having me.
Chris Willis:
Let's just jump in and I'll set the stage a little bit with the events that happened right after the administration changed. A few days after the administration changed, we had the president appointing first, the secretary of treasury to be the acting director of the CFPB. While he was the acting director, he essentially told all CFPB employees to stop working. Then a couple of days later, the head of office of management and budget, Russell Vought, was appointed as the acting director for the CFPB. He reiterated the stop work order and also, instructed employees not to come into the CFPB's offices and, in fact, for them not to do any work of any kind. Something like that was in the email to the staff.
Mr. Vought also laid off all of the probationary employees of the CFPB. We understand, about 200 people. And the CFPB was not really doing much at that moment. Almost immediately after all those actions occurred, which was in the span of a pretty short period of time, just about a week, the employees union that represents the CFPB employees, the National Treasury Employees Union filed a lawsuit in the U.S. District Court for the District of Columbia, asserting that the layoffs and the alleged shutdown of the CFPB were illegal and moved for a temporary restraining order and a preliminary injunction.
A number of other plaintiffs later joined that lawsuit, various consumer advocacy organizations, etc. That case then moved forward. There was also a parallel lawsuit filed, as I recall, in the District of Maryland by the City of Baltimore, which was then later joined by the attorneys general from a bunch of states. Not all of them, of course, but quite a few states, again, alleging that the administration was shutting down the CFPB and that litigation moved forward, but they've taken some pretty different paths, I have to say.
In the employees union lawsuit, the one that's pending in the District of Columbia, the parties initially agreed on a temporary restraining order while the judge could set and get briefing on a preliminary injunction motion, then the court held a preliminary injunction hearing, then wanted an evidentiary hearing, which occurred a week later. That was on March 10th and 11th, then it went for two days, and then took the matter under advisement and asked the parties to submit proposed orders but indicated during the evidentiary hearing that she was likely to issue some preliminary injunction.
Where that one stands right now is the TRO is still in effect by agreement to the parties, actually, and the court is considering whether to issue a preliminary injunction. If so, who's ordering and modified in what way, she may enter. That's where that one stands. Joe, how about the Baltimore one? Where's that one sitting at the moment? Because that one's taken a very different course, as I recall.
Joe Reilly:
Yes. I think just two days ago, the judge in that case refused to issue any provisional relief. The plaintiffs were claiming that the evidence that the CFPB would be returning funds to the Federal Reserve was enough of a basis for the court to intervene, but the court declined. I think, further briefing is coming in that case.
Chris Willis:
Yeah, and there was evidence submitted in the District of Columbia case that there was never any move to try to return any of the CFPB's funding to the Federal Reserve. In fact, there was no way to actually do that, even if they wanted to, was my recollection of the evidence that was presented on that point. There was a lot of conflict in the evidence in the District of Columbia case about whether the intention was to fully shut down the agency, or just to make it more “streamlined and right-sized” were some of the words that were used in the evidence submitted by the administration.
Anyway, that's where the current litigation stands. Of course, that's not the only set of events that's been happening with the CFPB, because in addition to appointing an acting director, two different acting directors, the president also nominated Jonathan McKernan to be the director of the CFPB and submitted that nomination to the Senate for approval. Mr. McKernan had a hearing in the Senate committee as the first step of that nomination. The committee voted him out with approval. And so, his nomination is now ready to be considered and voted on by the full Senate. That vote has not happened yet, but could happen at any time.
My own view is that he is likely to be confirmed. He came from the FDIC. He actually has a financial regulatory background and has experience as a financial regulator. I don't think anything happened during his hearing that would prevent him from being confirmed by the full Senate, especially after he was approved by the committee. That could happen at any time. It's an open question as to how that might interact with whatever the judge does in the employee union case. Because right now, the defendant is Russell Vought, because he's the acting director of the CFPB. But if Mr. McKernan is confirmed, one would think that the court will want to hear from him about what his intentions are with regard to the agency. I don't know that that will happen, but it seems like a logical thing that could occur. It may be that that will happen while the court is still considering the preliminary injunction issue.
While all that's happening, although the CFPB was not doing anything after those stopped works, emails went out in late February, there have been some signs of the CFPB partially coming back to life and starting to engage in some work. Joe, do you want to tell the audience about that?
Joe Reilly:
Sure. Some signs for sure. For one thing, the bureau has continued to process consumer complaints as it's statutorily required to do. Then sporadically, we've been seeing signs of life in the form of emails being returned, even in some select enforcement cases. Employees who were not on official email for some time have returned, even if their future duties are unclear. I mean, certainly, one of the things the CFPB has been doing during this time has been dismissing some of its higher profile enforcement actions. It's decided to dismiss four or five, I think, enforcement actions that were brought by the Biden administration. Many enforcement actions are still in limbo. Clearly, there's a review going on of pending enforcement actions. It's unclear if we're going to hear more before McKernan is confirmed or not.
Chris Willis:
Yeah, and it's interesting, because even though many of the cases were dismissed and the dismissals were with prejudice, by the way, not without, so there's no revisiting them. There's no refiling them. They're gone forever. But the CFPB actually did make the decision to continue pursuing two of the pending enforcement cases and affirmatively stated that to the courts in both of those cases. They're certainly not dismissing everything that are, as you said, Joe, there appears to be some consideration being given to, I want to keep this one and I don't want to keep that one. As you said, there's quite a few enforcement cases still pending as to which the CFPB has not made a statement yet. Or if it has said anything, has just said, “Judge, give me 60 days to consider what I want to do,” essentially. There are a number of them sitting with stays like that, where the Bureau is supposed to get back to the court after a certain period of time. That's going to be a familiar thing, because we're going to hear about that again in a minute when we talk about rulemaking.
The other thing is that one would think that the CFPB's new leadership has to first decide what to do with those that are pending in court, the enforcement cases pending in court, because there's deadlines and schedules, and there's a judge sitting there waiting to see what the parties are going to do. Of course, the bureau had numerous enforcement investigations underway at various stages, from initial CIDs to ones where they might have given a NORA notice, or even gone further than that, but had not yet resulted in litigation.
We would assume that there will be a similar review process for those that are not yet in litigation, but that those weren't given as high of a priority as those that were actually in court. We'll see what happens with that, but we think that there likely will be some review process there. That's not dissimilar to what happened during the first part of Mick Mulvaney's tenure as acting director in 2017 and 2018. There was a similar enforcement review at that time, with some cases staying, going, and others being closed, or things like that. There weren't nearly as many pending in litigation at that time though.
The other big thing, and the thing I know the audience will definitely want to hear about, is what is the status of the CFPB's various rulemaking efforts, particularly those that were finalized during the last administration? One of the biggest ones is the 1071 rule, the Small Business Data Collection Rule. Joe, I know you're involved in that litigation representing one of the parties. Do you mind telling the audience what's going on in the litigation and the status of the rule?
Joe Reilly:
Sure. As Chris said, a number of plaintiff trade associations, including one we represent challenged the 1071 rule under the Administrative Procedure Act. The trial court last summer actually ruled in favor of the CFPB. The district court upheld the rule, said it didn't violate the Administrative Procedure Act. We and the other plaintiff trade associations then appealed that decision to the Fifth Circuit. In a somewhat dramatic moment on February 5th of this year, when the Fifth Circuit had scheduled oral argument, the CFPB appellate attorney, who had probably prepared to defend the rule, just like the CFPB had done in the trial court, she announced that she had received a message just that morning that in all pending litigation, CFPB attorneys were to ask for a pause and could not take any positions. That the pause would be necessary for the new administration to formulate its position.
In front of the court, she asked for 90 days. We're about halfway through that 90-day period. The CFPB did also agree with respect to the 1071 rule that while it's reviewing things, the rule is told. That is, the compliance states are being put back while we wait for the CFPB. Now, in terms of a prediction, there are a couple of factors here. The 1071 is a statute. There's no getting rid of that. The CFPB also is a party to a settlement order in a case brought by plaintiffs who were saying, it was taking the CFPB too long to issue this rule. I mean, the statute was passed in 2010, so it's been 15 years. The CFPB agreed in that settlement order to proceed with due diligence to get a final rule into effect. The CFPB is bound by that settlement order.
I think at the end of the day where we think things will come out is that the CFPB will probably tone the rule down somewhat, which it would have to do with notice and comment rulemaking, proposing to amend the rule. I think the question about LGBTQ status is probably coming out based on other positions the administration has taken. They may do some other things to make the rule somewhat less burdensome. But I think our prediction is that it's going to have to stick with the core of the rule.
Chris Willis:
Joe, just going back to the pause, or the stay on the effective date of the rule, the CFPB asked for 90 days, but that's not exactly what the Fifth Circuit did, did it?
Joe Reilly:
Right. The 90-day period is not set forth in any order. Really, all the Fifth Circuit did was enter an order tolling the effective date of the rule. The effective date will continue to get pushed out with every day that passes since that order from the Fifth Circuit. I think there's still a general expectation that, and I think the court expects to hear back from the CFPB 90 days after February 5th.
Chris Willis:
Sure, that makes sense. I just thought the wording of the order was interesting, because it didn't stay at for any particular period of time. It's just like, this is day by day, and we can revoke the order at any time. By the way, this isn't a comment on the merits of the case.
Joe Reilly:
Right. We'll have to see. Hopefully, once McKernan is confirmed, the CFPB can proceed to formally position and inform the court.
Chris Willis:
Yeah. Then it'll be interesting to see how the plaintiffs react to that. Let me talk about a couple of other almost every rulemaking that the CFPB had done during the Biden administration became the subject of a court challenge. In general, in those pending court challenges, the CFPB has taken a position similar to what Joe just described with respect to the 1071 rule. That is, “Court, please put everything on hold for 60 or 90 days. Let us decide what we want to do here, and then we'll come back to you.”
The two notable variations of that involve the overdraft rule and the credit card late fee rule. I'd like to tell the audience a little bit about those. With regard to the overdraft rule, after the CFPB said, “Hey, we need to decide what we want to do with this,” and it's a rule that, at least from my perspective, seems like a pretty significant stretch in terms of the CFPB's authority, and therefore, very vulnerable to a legal challenge, and therefore, likely to be withdrawn by the new administration through, again, a notice and comment rulemaking process. The court, once it got wind of the fact that the CFPB might not defend the rule, allowed some consumer advocacy groups to intervene in the case for the purpose of defending the rule, basically over the objection of all the rest of the parties, with the idea being, “Well, I want somebody to defend the rule, even if the CFPB is not going to.” That's the only instance I'm aware of where a court has done that, but I think it's interesting.
The other interesting one is the credit card late fee rule, where again, the CFPB initially went to the court and said, “Give me some time to decide what I want to do under my new leadership.” The court said, okay, and stayed the case for a period of time. As that period of time was coming to a close, the bureau filed another notice with the court saying, “Essentially, we have been engaged in discussions with the plaintiffs, the trade associations who had challenged the credit card late fee rulemaking. We believe, it may be possible to resolve this matter by agreement, but we need some more time to finish that process, so to speak. Give us some additional time. Stay the case for an additional period of time.”
Within a day or so, the judge, Judge Mark Pittman, in the Northern District of Texas said, “Okay. It looks like you're telling me that you may have a settlement on your hands. So, I'll give you some more time. Report back to me and tell me whether you're able to settle the case.” That's an interesting one, because it suggests that the CFPB is at least close to committing to a course of action with respect to that rule making that may result in the resolution of the dispute over the rule with the trade associations who were plaintiffs there, which obviously suggests that the rule will be either withdrawn, or significantly modified. Which again, we expect it because that was a rule that we also thought was fairly out there in terms of the CFPB's authority and the basis for the rule and therefore, was vulnerable to the legal challenge to which it was subject. It's an interesting preview of what the disposition of that rule might be. We haven't seen anything like that with respect to the other rulemakings.
I think, Joe, where are we left? What are we going to do now in terms of having recapped these first couple of months, what do we do now?
Joe Reilly:
Well, I think we wait for the McKernan nomination to be confirmed and listen very closely.
Chris Willis:
Yeah. That's exactly what we'll be doing. I mean, I don't feel like there's any way for us to predict generally what's going to happen with the CFPB writ large. I think we can be confident that some of these rulemakings will be withdrawn, or modified, but others less clear exactly what may happen to them. Certainly, we need to stay tuned. Of course, we are staying tuned. We have a lot of sources of information to draw upon, to know what's going on with the CFPB. We will continue to monitor it here at Troutman Pepper Locke, and we'll be reporting on events of note in our blogs and also on this podcast. To our readers and listeners, please stay tuned to our communication channels and we'll keep you updated as things play out in real time.
Joe, thanks for being on the podcast today. Thank you to our audience for listening in today as well. As I said, don't forget to visit and subscribe to our blogs, because we have blogged extensively about a lot of these developments at ConsumerFinancialServicesLawMonitor.com and TroutmanFinancialServices.com.
Another great thing to do would be to add yourself to our consumer financial services email list. You can do that through our website at troutman.com and that will allow us to send you copies of our alerts and advisories, as well as invitations to our industry-only webinars that we put on from time to time. Of course, stay tuned for a great new episode of this podcast every Thursday afternoon. Thank you all for listening.
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