.svg)
In what appears to be a carefully timed publicity stunt, the Consumer Financial Protection Bureau (CFPB) has halted five enforcement actions as its new director nominee spoke before the US Senate.
On Thursday (February 27), President Trump’s pick for the next director of the CFPB, John McKernan, took part in his first confirmation hearing after being named for the role.
Appearing before the Senate Banking Committee, McKernan’s hearing was partly upstaged by the news, which broke as the hearing drew to a close, that the CFPB has dropped five enforcement actions.
These included a major case against Capital One, who the CFPB had accused of “cheating” customers out of more than $2bn in interest payments.
Senator Elizabeth Warren (D-MA), in her closing statement to the committee, said the timing of the news indicates that McKernan, if confirmed, will be little more than a figurehead within the agency.
“Literally, while you have been sitting here and talking about the importance of following the law, we get the news that the CFPB has been dropping lawsuits against those alleged to be cheating American families,” she said.
“It seems to me the timing of that announcement is designed to embarrass you and to show who exactly is in charge of this agency right now: Elon Musk and his little band of hackers.”
Warren questions Musk’s designs on CFPB
Earlier in the hearing, Warren had drawn attention to Musk’s significant influence within the new administration, describing him and Donald Trump as “co-presidents”.
She also said that Musk is “hell bent” on abolishing the CFPB, noting that the billionaire has posted “delete CFPB” and “RIP CFPB” on his X account.
As covered by Vixio, Musk has also suggested that the CFPB’s current reserve balance of $711m should be “returned to taxpayers”.
“I appreciate all of your happy talk about following the law, but I think we all know what’s going on here,” said Warren.
“Elon Musk is determined to shut down this agency, even though he has no legal authority to do that.”
Warren suggested that McKernan was being set up as a fall guy for the CFPB — an accusation he denied.
If confirmed, McKernan said he will apply all of the statutory obligations of the CFPB, as outlined under the Dodd Frank Act of 2010.
He also disagreed with Warren’s claim that the CFPB’s 1,700 staff have been told to stop working since acting director Russ Vought took over the agency, noting that certain exceptions have been made for “legally required” work.
Consumer protection ‘critical’, ‘politicisation’ not
In his opening statement to the committee, however, McKernan struck a more critical tone when describing the CFPB’s work.
He said that watching the 2008 financial crisis had given him an “enduring conviction” that “consumer protection is critical”, but he also said the CFPB has, over the years, lost sight of its original mission statement.
“It has acted in a politicised manner,” he said. “It has pushed beyond the limits of its statutory authority. It has seized opportunities to expand its jurisdiction and power.
“It has offended our basic notions of fairness and due process when it has regulated by enforcement.
“And it has harmed consumers through higher prices and reduced choice when it has failed to strike an appropriate balance between costs and benefits in prescribing new regulations.”
If confirmed, McKernan said he would bring these “excesses” to an end and make the agency accountable to Congress once again.
“Under my watch, the CFPB will take all steps necessary to implement and enforce the federal consumer financial laws and perform each of its other statutorily assigned functions,” he said.
“But the CFPB will do this by centering its regulation on real risks to consumers and by focusing its enforcement on bad actors.”
$2bn Capital One lawsuit dropped
The largest of the five newly dropped cases is the CFPB’s action against Capital One.
A week before President Trump took office, the CFPB sued Capital One for “unlawfully misleading” users of its 360 Savings accounts and “obscuring” higher-interest savings products from them.
Capital One had marketed the flagship 360 Savings accounts as offering one of the nation’s “best” and “highest” interest rates, but the bank froze the interest rate at a low level while rates continued to rise nationwide, the CFPB alleged.
Around the same time, Capital One created a “virtually identical” product, 360 Performance Savings, that paid out substantially more in interest — at one point more than 14 times the 360 Savings rate.
However, Capital One did not specifically notify 360 Savings account-holders about the new product, and instead “worked to keep them in the dark” about these better-paying accounts.
The CFPB alleges that Capital One’s actions resulted in more than $2bn in lost interest payments to 360 Savings account-holders.
Chuck Bell, advocacy programme director at Consumer Reports, said the dropping of the case indicates that the new CFPB intends to take a lighter-touch approach to regulating relationships between banks and their customers.
“One of the CFPB’s strongest tools is its ability to enforce existing consumer protection statutes and order companies to refund customers and pay a hefty civil penalty when they are found in court to have broken the law," he said.
“Dismissing its lawsuit against Capital One sends the message that the CFPB plans to look the other way when banks and other financial companies mistreat their customers."
A Capital One spokesperson said: “We welcome the CFPB's decision to dismiss this action, which we strongly disputed.”
In addition to its case against Capital One, the CFPB dropped its cases against Heights Finance, Rocket Homes, Mortgage and Finance, and the Pennsylvania Higher Education Assistance Agency (PHEAA).
