The suspension of several pending litigation matters by the Consumer Financial Protection Bureau (CFPB) could hold major implications for cases challenging the agency’s rulemaking activities and cases attempting to redress harmed consumers.
Dodd Frank Update spoke with three attorneys about the implications of acting director U.S. Treasury Secretary Scott Bessent’s decision to withdraw the CFPB’s legal defense staff from these proceedings as part of a comprehensive review of its policies and actions to bring them in alignment with the Trump administration’s objectives.
When considering whether an action taken by the bureau is in real danger of being invalidated by the court system, one must consider a few key factors:
- Whether or not it is a final rule
- Whether the CFPB was statutorily required to do it
- The venue in which it is being challenged
Statutory final rule challenges
Husch Blackwell Partner Chris Friedman said lawsuits challenging rules that have gone through the full notice-and-comment process, such as the CFPB’s small business data collection rule implementing Sec. 1071 of the Dodd-Frank Act, will be difficult for the bureau’s new leadership to abandon. The agency would need to craft a replacement rulemaking to substantially alter these regulations if it wants to avoid further legal challenges.
“When you look at the history of the rulemaking under Sec. 1071 of Dodd-Frank, two things come to mind,” Friedman said. “First, the CFPB put 1071 on the back-burner for a long time. It was over 10 years after Dodd-Frank was passed before the CFPB, under (former director) Kathy Kraninger, decided to put a rulemaking in place. But what initially nudged the CFPB along was a lawsuit by the California Reinvestment Coalition, who contended that the CFPB violated the Administrative Procedures Act (APA) by unreasonably delaying the rulemaking.”
With this history in mind, if the bureau were to attempt to switch sides, taking an opposing position to its own rule, there would likely be a similar outcry and potential litigation from the same types of community advocates.
“So all that’s to say in some of this litigation, the CFPB might take the position that they want to put a final, published rule on pause – without going through a new rulemaking – because they don’t like what [former CFPB Director Rohit] Chopra’s CFPB did,” Friedman continued. “But there are groups out there that are well-funded, and they are certainly in a position to file lawsuits and look to intervene and throw sand in the gears.”
Friedman noted that, “in these instances, consumer advocacy groups may attempt to intervene and take the position that in order to stop pursuing that rule, you’ve got to go through another notice in rulemaking.”
David Friend, who worked at the CFPB during the first Trump presidency and is the owner of Friend Mortgage Consulting, offered a glimpse of what it was like to work for the bureau during that time. What he learned that could give clues as to how to interpret what may be to come.
One of the biggest challenges he said he faced was never knowing for sure if what the White House said it would do would come to fruition. To try and get an idea of what the second Trump administration’s priorities for the CFPB might be, including with respect to litigating certain rulemakings, Friend studied portions of Project 2025, a conservative manifesto written by several politicians and businessmen with ties to the Republican party and Trump.
Project 2025 includes several critiques of the CFPB and recommendations for how Congress may weaken or defund it. The CFPB’s rulemaking under Sec. 1071 of the Dodd-Frank Act is among the rules referenced in the document. Since Bessent took over, the bureau has filed an emergency notice indicating it does not oppose a stay of the industry-opposed rule designed to identify potential fair lending issues and is seeking a pause in related proceedings.
However, it may be too late to enact the reductions in required data fields and other changes to the rule’s reporting requirements Project 2025’s authors described.
“At this point, it’s going to be a question of whether they will defend the statutory provisions, or if they’re just going to drop the things the CFPB added under its own authorities when it finalized the rule specifically related to collecting demographic data for LGBTQ people,” Friend said. “There are some things that are statutory in Sec. 1071 that Congress said CFPB should collect and do an analysis on so that’s kind of where, where my thinking was on how they're going to approach it.”
Referring to Trump’s executive order eliminating federal Diversity, Equity, and Inclusion (DEI) staff, Friend described the expanded demographic collection requirements in the small business lending rule as likely being viewed as “DEI-adjacent” by the new administration, which would explain any opposition to its implementation.
The bureau recently asked for a 90-day delay of the 1071 implementation deadlines. The plaintiffs responded by asking for the deadlines to be tolled for the duration of the litigation. Multiple community interest groups filed a joint motion to intervene, which was denied by the court.
Discretionary rules, interpretive rules, guidance
In contrast to the bureau’s statutorily mandated rules that have been finalized, the bureau’s rulemaking activities not tied to a statute – such as the data broker rule and the ban on medical debt in credit reports – will be more vulnerable without the backing of the bureau’s legal defense team.
“If the rule’s not final, I think it’s an easier case,” Friedman said. “If it’s a final rule, I think they’re going to have a much harder time, and there’s a lot more legal gray area. Of course, we don’t see the CFPB having any issue killing Chopra-era interpretive guidance.”
These types of actions include the CFPB’s interpretive rule on Buy Now, Pay Later products, as well as its recent policy statement on No Action Letters and various circulars and other guidance materials.
Location, location, location
Another determining factor for litigation involving CFPB rulemaking actions is which court is hearing the arguments, Friedman explained, alluding to the fact that the U.S. court system, though meant to be impartial, tends to have courts that lean more left or right, politically, based on their judicial makeup. He referred to the U.S. Fifth Circuit Court of Appeals as an example.
“For instance, during the Biden administration, trade groups tended to file suit in federal district courts covered by the Fifth Circuit,” Friedman said. “Consumer interest groups are going to have a much more difficult time defending Chopra-era policies in that jurisdiction. Arguably, if the CFPB elects to shift sides, there will be efforts by those consumer interest groups to either intervene or to file some kind of lawsuit arguing that the CFPB flip was a violation of the APA. But if you try that in Fifth Circuit or another more business-friendly jurisdiction, I think you’re going to have a harder time winning.”
The same advocacy groups may decide to file suit in another court, such as the Ninth Circuit or the D.C. Circuit, in hopes of forcing the CFPB to enforce its own rules, should the situation come to that.
Enforcement actions and consumer redress
The impact on the CFPB’s pending enforcement actions and consumer redress efforts is less clear than for rulemaking actions, given the vast number of cases the agency has filed on behalf of harmed consumers.
Contrary to popular belief, Husch Blackwell Senior Counsel John Redding insisted the narrative that the CFPB does not investigate wrongful activity during a Republican administration is fiction.
He noted that any CFPB undertakings found to be consistent with the incoming administration’s priorities and policies will be allowed to resume once the Trump administration completes its comprehensive review. However, it is possible the scope of these matters may be more limited.
“If bureau leadership determines a particular investigation is inconsistent with those priorities and policies, they may close the investigation and issue a ‘no action’ letter,” Redding said. “Just as civil investigative demands (CIDs) are not made public, neither are no action letters, so it would be unusual for anyone other than the bureau and the target company to be aware the no action letter was issued. In a Republican administration, as we have now, if the investigation involved a violation of established law, we would expect the investigation to continue and, to the extent the violation of law were confirmed, result in either litigation or a consent order.”
Notably, Redding pointed out that a “meaningful volume” of investigations and consent orders decided during the first part of the Biden administration were initiated during the first Trump administration.
Other rules of note
Not all of the CFPB’s rulemakings under the Biden administration are necessarily going to be targeted under Trump.
For example, Friend suggested the CFPB’s Property Assessed Clean Energy (PACE) financing rule may actually align with certain Republican policy priorities in one respect.
“Given the policy positions and the animus that seems to be in Project 2025 and in the new administration towards solar energy and renewables, they may let the PACE financing rule go into effect, simply because it was designed to basically rein in renewable energy,” he said.
The CFPB’s rule implementing Sec. 1033 of Dodd-Frank is one Friedman and Friend are especially curious to watch. There is a split among industry participants and lawmakers about certain provisions concerning third-party oversight and other issues cited in a lawsuit filed by the Bank Policy Institute in the Fifth Circuit.