Bessent Empowered to Freeze CFPB Under Agency’s Founding Law

Democrats and consumer advocates slammed Treasury Secretary Scott Bessent over his plans to freeze the Consumer Financial Protection Bureau, but he has wide latitude to act under the law Democrats passed to create the agency and strengthen its director.

In his first act Monday after President Donald Trump named him acting CFPB director, Bessent put most of the CFPB’s operations—from enforcement to communication with the outside world—on hold. Only congressionally mandated regulations can move forward without Bessent’s approval, according to an email he sent to CFPB staff that was first reported by Bloomberg Law.

The move echoes plans from Elon Musk and his Department of Government Efficiency to shutter the US Agency for International Development, even though the agency was created by Congress and is funded through appropriations. But in the case of the CFPB, the agency’s founding law gives the director, acting or Senate-confirmed, virtually unrestricted powers to curb the agency’s operations and zero out its budget.

While Bessent or a Senate-confirmed CFPB director wouldn’t be able to eliminate the CFPB without legislation to do so, the agency’s structure leaves it vulnerable to being hollowed out, said Graham Steele, the former assistant Treasury secretary for financial institutions in the Biden administration.

“It was reasonable to expect the facade of the CFPB would be left in place, but it would be starved of resources and largely be taken off the enforcement beat,” he said.

Trump brought in Bessent after firing Rohit Chopra, who led the agency under former President Joe Biden.

The CFPB was created in the 2010 Dodd-Frank Act as part of the federal government’s response to the 2008 financial crisis and the abusive mortgage lending practices that led to it.

The law says the agency must be based in Washington under a single director. It must be funded through money transferred from the Federal Reserve rather than by Congress. And it has a host of investigative and enforcement powers at its disposal.

Beyond those mandates, Trump’s pick to lead the agency can largely do whatever he wants.

“That is in the law,” said Rachel Rodman, a White & Case LLP partner and former top CFPB attorney. “How many investigations those offices open, how many employees are in those offices, how active they are: All of that depends on the director,” she said.

Director’s Powers

Bessent’s actions mirrored those of Mick Mulvaney, tapped to serve as acting CFPB director during Trump’s first term, Steele said. Mulvaney, who also led the Office of Management and Budget at the time, put a hold on CFPB activities for 100 days while he reviewed agency actions.

Bessent’s order is even more restrictive, however.

Along with freezing rulemaking and enforcement while the Trump administration reviews Chopra’s actions, Bessent ordered a hold on all external communications and material agreements with employees or contractors.

Bessent’s order has sparked widespread confusion within the CFPB, according to multiple sources not at liberty to discuss the matter publicly.

The CFPB didn’t acknowledge requests for comment for this story.

Sen. Elizabeth Warren (D-Mass.), the ranking Democrat on the Senate Banking Committee and the CFPB’s architect, condemned Bessent’s move.

“Secretary Bessent must reverse course, and if he doesn’t, I will use every tool at my disposal in the Banking Committee to hold him accountable—along with any company that lines its pockets at the expense of American taxpayers,” Warren said in a Monday statement.

But there may not be much she can do, said Todd Baker, a senior fellow at Columbia University’s Richard Paul Richman Center for Business, Law, and Public Policy.

Warren’s plan when devising the CFPB was to make the director “extremely powerful as compared to leaders at other financial regulatory agencies,” he said.

The CFPB director was originally given for-cause removal protections, which allowed former Director Richard Cordray, an Obama appointee, to stay in office for nearly a year during the first Trump administration, adding to the director’s power, Baker said.

“This is power that can be used to do things (as Chopra showed), or not to do things (with exceptions like enacting Congressionally mandated regulations),” he said in an email.

The US Supreme Court removed that protection in its 2020 Seila Law LLC v. CFPB decision, making the director an at-will employee of the president.

But so long as Bessent or a future CFPB head remains in office and stays in Trump’s good graces, there’s little stopping them from bringing the agency’s work to a standstill.

Time-Tested Rules

Consumer advocates are raising concerns that a non-functioning CFPB, at least for now, will cause enforcement to collapse.

But companies have a vested interest in an operational CFPB, said Joann Needleman, who leads Clark Hill PLC’s financial services regulatory and compliance practice.

The mortgage industry, for instance, has come to rely on the CFPB’s requirements for lenders to assess a borrower’s ability to repay in exchange for certain legal protections.

In an influential brief leading up to the Supreme Court’s May 2024 decision upholding the agency’s independent funding, the Mortgage Bankers Association said eliminating the CFPB and its rules would bring chaos to the home loan market.

Other companies don’t want to lose all the work they put in to comply with CFPB rules since it opened its doors in 2011, Needleman said.

Bessent said nothing about supervision in his email, so companies need to prepare as if CFPB examinations are going to continue until told otherwise, she added.

States Lurking

States are also likely to step in if the CFPB goes quiet, Needleman said.

Dodd-Frank gave state attorneys general the power to enforce CFPB regulations and federal consumer finance laws.

Ahead of the Trump’s inauguration last month, the agency published a compendium of rules and guidance for state regulators and law enforcement to follow.

“These states have been practicing this for 10 years,” Needleman said. “They’ve been waiting for this day.”