What is Trump’s true plan for the CFPB?

The nomination of Jonathan McKernan to lead the Consumer Financial Protection Bureau (CFPB) suggests that, despite the “delete” rhetoric around the bureau, the consumer watchdog isn’t going to be de-fanged and sent to the kill shelter just yet.

McKernan, a well-respected, veteran financial regulator with prior stints at the Treasury Department, Federal Housing Finance Agency (FHFA) and powerful senate committees, is expected to be confirmed by senate vote this month and take control of the bureau.

What sort of agency he will lead is perhaps the most intriguing question among housing professionals in Washington. On Saturday, the agency’s acting director, Russ Vought, instructed staffers to stop nearly all its work, including supervision and examination activity.

Vought and other influential Republicans in Washington have publicly campaigned to “delete” and defund the agency, something Trump himself said he supported in a press conference on Monday. But McKernan isn’t the type of person you tap to just shut it down.

Is McKernan going to delete the agency, or reform it?

HousingWire spoke to industry attorneys, CFPB staff members, housing policy professionals and trade group leaders on Wednesday to get their takes on McKernan’s nomination. Some would only speak anonymously to avoid potential retaliation from the White House.

An existential crisis and a bargaining chip

The truth is, none of the dozen sources HousingWire spoke to for this story really know the Trump White House’s intention with the CFPB. One Washington housing finance veteran speculated that Trump is taking a shock-and-awe approach with the dizzying array of aggressive moves designed to hobble the agency.

“This is a theory, it’s like the shots across the bow, in part to figure out where the opposition is, in part to lay the groundwork,” he said. “Then you withdraw and you get what you want. He did that with the tariffs with Mexico and Canada, for example. If they were going to shutter this place, then they would have left Vought as acting director. He’s like the Terminator. It just makes no sense to nominate McKernan if they’re just shuttering the place.”

A staff member at the CFPB told HousingWire that one theory circulating around the still-frozen agency is a “bad cop, good cop” strategy. Vought this week fired 70 largely probationary employees of the agency.

“Some of the thinking now is that they let Vought do the dirty work to trim now, then have Mckernan come in as good cop,” the employee said. “And use keeping us as a tool to get budget deal compromise.”

The CFPB employee said he expects the agency’s funding structure to be part of the upcoming debt ceiling and tax plan negotiations.

Another theory is White House staffers realized it’s too constitutionally difficult to try to shut down the agency. There are simply better, more practical options for Republicans.

McKernan “definitely seems like someone who you would nominate if you want to reform and operate the CFPB, as opposed to deleting it,” said Peter Idziak, senior associate at mortgage law firm Polunsky Beitel Green. “My thought is that the administration may realize that if you simply hollow out the bureau, you leave in effect all the regulations that have been crafted under Chopra and the Consumer Financial Protection Act, [which] authorizes state attorney generals and in some cases, private parties, the ability to enforce these federal consumer financial laws and these regulations. So you would be essentially ceding the field to Democratic AGs.”

Even if McKernan is appointed and has a broad mandate from the Trump White House to reform the CFPB, he will likely be challenged by vocal elements within his own party, particularly House Republicans, who wish to see the agency burnt to the ground, one source said.

“Every time he comes up before them at a hearing, they’re going to want to hear him say, ‘my agency is fraudulent, it’s ridiculous. I’m getting money from the Fed, I shouldn’t be spending anything,’ and he’s not going to be doing that.”

What lenders might see from a new-look CFPB

McKernan’s record at the FDIC and other agencies suggests he would be a more conservative regulator who takes a narrower reading of the statutes than his predecessor, Rohit Chopra, who was often criticized by the industry for aggressive jurisdictional interpretations, wading into medical debt and ‘junk fees.’

“My thought is that McKernan signals that despite the ‘delete the CFPB’ rhetoric, that you’re going to see a CFPB that continues to operate in admittedly a much smaller footprint, but still operates,” said Idziak.

He expects a McKernan-led agency to pull back on tying discrimination to UDAAP, fewer enforcement actions, and a move away from the disparate impact theory tied to fair lending actions.

“McKernan has echoed that the rules have to be clear and can’t be overly burdensome. So I think you’ll see a more collaborative approach with industry,” he said.

One source said he didn’t think large-scale overhauls to dated rules like RESPA — something the industry favors — would be something McKernan would tackle, though Regulation X reforms could be in the cards.

Regardless, the agency is still responsible for a significant amount of routine activity within mortgage. Annual HMDA reports are due soon, for example, and there’s weekly SOFR reports the industry relies on, said Faith Schwartz of Housing Finance Strategies.

She expressed hope that McKernan would bring common sense regulation.

“Having a cop on the beat, I don’t care how great our industry has been post Great Financial Crisis, there are a lot of rules and laws in place, some of them old, that have been under new proposed rules that need to be finalized that will help the industry continue to streamline and be more efficient. And the CFPB is very involved with that.”

Even when the “delete” rhetoric was strongest in Republican circles, lenders didn’t change their compliance practices, noted Colgate Selden, a partner at SeldenLindeke LLP. 

“​​I think everyone was kind of in a wait and see a little more to see who comes in as director. No one was changing anything, given the amount of time for some examination look-backs, state regulators.”

Potential changes to the CFPB

Sources HousingWire spoke to conceded that there are too many factions within the Republican party and too many variables still at play to really know how things will shake out with the CFPB.

Most said they expect the bureau’s staffing level to be smaller and its budget to be reduced, but larger structural questions still loom.

Scott Olson, the executive director of the Community Home Lenders of America, said intervention from Congress could change the funding structure of the agency and even the scope of McKernan’s power.

“If Congress weighs in, they’ll probably go from a director to a board…and I think there would be support for that. There’d be opposition, but I think they’d get through. Number two, the big thing hanging over this is whether or not they end the statutory authority to send the Fed money over to run the agency and instead is subject to appropriations.”

Selden noted that the Trump administration has signaled an interest in consolidating the OCC and FDIC. While there have been high-level talks in Washington to merge the bureau with other federal agencies, there isn’t actually as much overlap as some have suggested, he said.

“The Dodd Frank Act kind of tried to weave through those edges, so to speak. From a supervisory and a regulatory administrative perspective, who has the authority to interpret the rules and write the rules?”