Competing Reports on CFPB Downsizing Signal Continued Volatility for Regulated Firms

Competing Reports on CFPB Downsizing Signal Continued Volatility for Regulated Firms

As the battle over the Trump Administration’s plans for the Consumer Financial Protection Bureau (CFPB) enters a new phase, firms operating in the US can expect fragmented oversight and inconsistent enforcement.

Although litigation to prevent job cuts at the CFPB has been ongoing since February 2025, a new challenge to the administration’s position has emerged via a government audit sponsored by Democratic lawmakers.

In February 2026, the US Government Accountability Office (GAO) published the first of two reports on the reorganisation of the CFPB, as requested by five senior Democrats led by Senator Elizabeth Warren (D-MA).

The group asked GAO to review the effect of the bureau’s stop-work orders, workforce reductions and contract terminations on its ability to fulfil its statutorily mandated functions.

The first report describes the “status” of the CFPB’s reorganisation efforts; the second will examine the “effects”.

To produce the report, GAO analysed publicly available information and sought to work directly with CFPB officials. However, according to the auditors, CFPB officials declined to meet with GAO and did not provide requested information, citing ongoing litigation constraints.

GAO argues that such litigation does not limit its authority under 31 U.S.C. § 716 to obtain information required for audits, nor does it diminish the bureau’s obligation to provide it.

Nonetheless, it is clear that there was some communication between GAO and CFPB officials, although this communication appears to have been satisfactory to neither party.

In a written statement published in an appendix to the report, CFPB chief legal officer Mark Paoletta described GAO’s work as a “hyper-partisan” attempt to “undermine” President Trump’s reforms. He said the CFPB did “engage” with GAO and tried to address “serious concerns” about “inaccuracies and misinformation” in the report, but these concerns went unheard.

“Despite serious flaws with the report’s accuracy and GAO’s inappropriate intent, CFPB staff have cooperated and attempted, where possible, to provide accurate data and context in the limited and arbitrary timelines set by GAO,” said Paoletta.

“It is the Bureau’s sincere hope that GAO will arrest its efforts to produce biased and flawed materials to smear President Trump’s historic reforms efforts.”

The exchange of rhetoric between GAO and the CFPB goes beyond routine bureaucratic friction, and suggests that GAO may be prepared to sue for information required for its second report.

Democrat lawmakers who already believe the White House and CFPB are acting outside of their statutory authority may also interpret the bureau’s perceived lack of cooperation with government auditors as further evidence of unlawful conduct.

Highlights from GAO’s first report

The first report, covering the period February to August 2025, lays out a timeline of events and a full accounting of CFPB layoffs and downsizing initiatives.

GAO found that the CFPB’s planned reduction in force (RIF), if permitted by appellate courts, would cut approximately 88 percent of staff, including a 90 percent reduction in supervision staff and an 80 percent reduction in enforcement staff.

In addition, GAO found that the CFPB dismissed almost half of its pending enforcement actions during the period under review (16 of 34), as well as withdrawing or rescinding 70 guidance documents and proposed rules, temporarily closing its headquarters and terminating its regional office leases.

Capacity collapse, but not abolition

For regulated firms, the exact numbers and percentages are less significant than what they signal about the agency’s direction of travel.

An 88 percent workforce reduction would transform the CFPB. Even if only implemented in part, it would significantly diminish the quality and quantity of supervisory examinations, slow enforcement referrals and constrain rulemaking capacity.

The agency might continue to exist as a statutory entity, but its operational footprint would be minimal. Compliance exposure would not disappear, but its pace and intensity would change dramatically: examination cycles would lengthen, investigations would move more slowly and guidance production would decelerate.

For regulated firms, the most plausible near-term risk in this scenario is one of uneven or sporadic federal regulatory activity, rather than a comprehensive withdrawal.

White House hits back

As GAO was completing its first report, the White House was finalising a counter-strike.

In February 2026, the Council of Economic Advisers (CEA), an agency within the Executive Office of the President, published a report stating that CFPB regulation has cost consumers significantly more than it has saved.

The CEA found that the CFPB has cost consumers between $237bn and $369bn since 2011, due to fiscal costs, increased borrowing expenses and reduced originations. This far exceeds the $21bn that the CFPB is said to have returned to consumers over the same period.

Although aspects of the CEA’s methodology, which includes regression analysis around mortgage underwriting thresholds and extrapolation to other credit markets, are open to challenge, the study provides an economic narrative to justify downsizing and reform. 

By reframing CFPB regulation as imposing cumulative consumer costs, it offers political cover for workforce reductions and funding reforms.

It also gives defendants in ongoing litigation a data-driven argument that downsizing serves a broader public interest.

Litigation focused on remedies

The final – and potentially most important – question hanging over the CFPB is the legal challenge to its workforce reductions, which is being led by the National Treasury Employees Union (NTEU).

In August 2025, the CFPB appeared to have fought off this challenge, when an appellate court vacated an earlier injunction that prevented the agency from terminating certain employees.

But in December last year, a circuit court issued an order vacating the August 2025 order and granting the plaintiffs' petition for an en banc rehearing.

Oral arguments were heard on February 24, 2026, and the case remains open.

In written arguments filed ahead of oral hearings, defendants maintained that employees contesting layoffs must seek relief through the Merit Systems Protection Board (MSPB) rather than through broad judicial injunctions.

However, judges pressed that position during oral arguments, questioning whether the MSPB has authority to halt what plaintiffs characterise as an unlawful dismantling of a congressionally sanctioned agency.

The NTEU case may prove decisive. If the appellate courts permit broader relief, the workforce reduction could be stalled for months or even stopped and reversed – the plaintiffs’ preferred outcome.

But if the appellate courts channel these disputes to the MSPB, then CFPB downsizing may proceed, with individual cases subject to administrative review.

For regulated firms, the practical takeaway is not necessarily deregulation but volatility.

In the meantime, a reduced federal footprint may lead to fragmented oversight, inconsistent enforcement patterns and a greater reliance on state regulators.