CFPB Shutdown: Welcome to the Wild West of Consumer Finance

And the coming era of the Big Tech "super app"

By Jimmy Wyderko and Kainoa Lowman

Over the weekend, the Trump administration forced a de-facto shutdown on the Consumer Financial Protection Bureau, shuttering an agency that was created out of the 2008 financial crisis to protect us all from predatory consumer finance practices. To date, the CFPB has returned $21 billion to victims of scams, fraud, and other forms of lawbreaking.

When Congress created the CFPB, it transferred to the agency the (largely neglected) consumer protection authorities of other banking regulators. By shuttering the CFPB, the Trump administration is not just going back to a pre-financial crisis status quo, but something even weaker — essentially a Wild West for consumer finance, with no cop on the beat.

This new reality will harm consumers and honest businesses in ways beyond what is obvious today. For one, it gives free rein to Big Tech companies to go into banking and payments without proper oversight. Big Tech companies — and particularly Elon Musk’s X — are eager to create super apps — similar to China’s WeChat — to mediate the totality of our financial interactions with the digital world. The CFPB under Biden-era head Rohit Chopra was moving toward supervising these apps in the way they supervised the nation’s largest banks, enforcing the basic consumer financial protection and privacy rules on them. That’s now off the table. A growing non-regulated, non-FDIC insured digital banking sector is a disaster waiting to happen. We can expect to see privacy violations, cybersecurity malpractice, and competition issues — and for people to lose money. As Matt Stoller writes, we may introduce a whole generation of Americans “to the bank runs of the 1920s, losing their savings because they clicked the wrong box.”

Below, we’ve laid out some of the concrete harms and impact of shutting down the CFPB.

Traditional crime back on the menu

• Post-financial crisis, Congress consumer protection authority from banking agencies (which had failed to prioritize it) to the new CFPB. Eliminating the CFPB means there will be no Federal enforcement of consumer protection rules for financial products. Not just a scam here or there, but regular losses of life savings by people who followed the rules, illegal foreclosures, random seizures of the working capital of small businesses, abuse by debt collectors, and routine deception by even respected financial firms.

• The CFPB has returned $21 billion to consumers by responding to reports of scams, fraud, and other predatory lawbreaking by financial institutions. There is now no one for Americans to call when they are cheated out of money by a lender, debt collector, or fintech company.

Big Tech’s “Everything App” Play

• The CFPB had proposed to supervise Big Tech and fintech platforms just like banks, subjecting them to the same consumer protection rules. The growing non-regulated, non-FDIC insured digital banking sector is a disaster waiting to happen. Big Tech companies will have a competitive advantage over banks without this oversight, allowing them to create all encompassing “super apps” that would consolidate control over our privacy, data, and how we interact with and pay for things in the digital world in the hands of a few dangerous tech giants.

• Tech oligarchs’ claim that the CFPB was an unaccountable agency set on “debanking” conservatives is a complete fabrication—in truth, the CFPB proposed the first ever rule to block debanking.

• The tech players calling for dismantling the CFPB included backers of companies shut down by the CFPB for scamming people or Big Tech players who want to avoid oversight.

  • Elon Musk has indicated he wishes to turn his company X into a bank and “everything app,” while the CFPB recently finalized a rule taking on Big Tech companies that want to operate like a bank without complying with the privacy and fraud protections banks must comply with. Mark Zuckerberg, head of Meta, has spread similar lies about the CFPB as Musk — likely also due to CFPB’s strict enforcement of Big Tech’s role in payment to protect consumers. Meta’s push to get into payments goes back to 2019 when it attempted to start Libra, a global currency under its control.

  • Brian Armstrong’s, head of cryptocurrency company Coinbase, resentment of the CFPB likely comes from the agencies work to shed light on the number of complaints in the crypto-asset space, which commonly reported being victimized by frauds, theft, account hacks, and scams. The CFPB has started seeking public input strengthening privacy protections and preventing harmful surveillance in digital payments.

  • Marc Andreessen and his VC firm A16z has funded companies like LendUp, which was shut down by the CFPB for cheating and scamming consumers. LendUp lied about better loan terms, broke legal orders, and failed to explain credit denials properly.

  • Austin Allred, another consistent critic of the CFPB, was famously penalized by the CFPB for deceiving students at his for-profit vocational school about the cost of loans, and for making false claims about graduates’ hired rate. This was a well known scam within the tech industry.

Key Consumer Protection Rules Abandoned

The CFPB was in the process of finalizing, or defending against lobbyist legal attacks, several pro-consumer rules and initiatives which will now be abandoned. Those rules are:

• A rule that requires large banks to cap overdraft fees at $5, or the minimum amount required to cover legitimate business costs. Banks now charge as much as $35 for each overdraft, generating billions in annual profit largely off the backs of low-income Americans.

• A rule banning unjustified excessive credit card late fees, and capping the typical late fee at $8 instead of $32. The rule closes a loophole exploited by large credit card issuers, and will save consumers an estimated $10 billion annually. Banks can still charge more than $8 if they can prove their actual collection costs exceed that amount.

• A rule to ban credit reporting bureaus from factoring medical debts into credit reports, and prohibit lenders from considering medical information in making lending decisions. The rule would have erased an estimated $49 billion in medical bills from existing credit reports, and improve the credit scores of roughly 15 million Americans.

• A proposed rule to create a bright line ban on financial companies using contracts that restrict consumers’ legal rights in the fine print. The CFPB specifically mentioned politically-motivated “debanking” as one phenomenon that the rule targets.

• A rule that said big banks can’t charge junk fees for basic customer service, like being able to check the amount of money in your account. We can expect these junk fees to permeate aspects of banking once again.

• An enforcement policy that it is against the law for credit card companies to devalue consumers’ earned rewards, fail to deliver promised rewards, or hide conditions for earning or keeping rewards. The shady rewards and points industry will likely have little to no oversight, leaving companies with free rein to devalue at will and hide their true worth.

• A free tool, Explore Credit Cards, which provides unbiased comparisons of credit cards based on a transparent dataset, whereas popular reviewers have financial ties to industry.

• A rule that mortgage servicers can’t garner excessive fees when they foreclose, which is an incentive to foreclose rather than working out loans.

• An “Open Banking” rule requiring banks to transfer personal financial data to other financial institutions for free at a customer’s request, enabling consumers to more easily switch banks and fostering competition.

• A public comment docket to receive input on credit card interest rates, terms, and conditions—a first step towards potential government action on credit card interest rates.

For more, read Matt Stoller’s piece on the CFPB’s dismantling here, and Helaine Olen’s MSNBC column here. Learn more about the CFPB’s accomplishments, enforcement actions, and rulemakings over the past four years here.