ACUMA ONpoint
ACUMA ONpoint
Navigating CFPB Transformations: Leadership Changes and Workforce Reductions
Join ACUMA President Peter Benjamin as he is joined by Zach Pfister, Policy Director at Brownstein Hyatt Farber Schreck. Together, they will discuss navigating complex shifts within the Consumer Financial Protection Bureau (CFPB) with insights. Have you ever wondered how the changing leadership at a major regulatory agency could ripple through the financial sector? With a wave of terminations, an operational freeze, and no budget request from the Federal Reserve, could we witness a strategic downsizing of the CFPB? As Jonathan McKernan is expected to step in as the new permanent director, our discussion probes the potential future landscape of consumer protection and credit union mortgage activities amidst these changes.
What does this mean for agencies like the CFPB and HUD in an era of federal workforce reductions? Zach helps us dissect the impact of these staff cuts and the resulting uncertainty for the business community, especially as communication with regulators diminishes. We explore the mixed reactions to a recent federal buyout offer and what these developments spell for maintaining compliance and agency functions. With the overarching goal of budget savings, we provide a roadmap of the challenges ahead and the possible reshaping of federal agency roles and responsibilities. Tune in for a meticulous examination of these pivotal developments.
The views and opinions expressed in this podcast do not necessarily reflect the views or positions of ACUMA, its board of directors, its management staff or its members. The podcast discussion presented is conversational in nature and for general information only.
Speaker 2:Hello, welcome to ACMA's On Point Podcast, the policy series where we focus on policy issues impacting the credit union mortgage industry. I'm your host, peter Benjamin. Joining us today is our resident expert, zach Pfister, policy Director with Brownstein, zach, my friend, how are you doing today?
Speaker 3:I'm doing well, Peter. It's good to be here.
Speaker 2:I have to call this out. Your voice sounds a little raspy, almost as though you've been yelling at a TV screen or something. I don't know what it is, but I don't know. It seems like a lot's going on in DC at the moment and I think we probably take this episode and thousands of different directions. I went into today thinking, ok, well, how do I not make this about the CFPB, the CFPB, the CFPB, et cetera? But there's just too much not to discuss, so I'm going to let you just jump right in and discuss whatever you so choose, but I imagine CFPB is going to be on the docket.
Speaker 3:So fire away whenever you so choose, all right.
Speaker 2:After you sir.
Speaker 3:All right After you, sir uh, followed by an acting director. Vote uh, russ, vote uh. Who's the current uh recently confirmed director of the omb? Um, he's in that position uh for the time being. It's possible. We're hearing rumors that there may be another acting director? Uh in the coming weeks.
Speaker 3:Some moves being made in the interim while Jonathan McKernan, the nominee for the permanent position, makes his way through the confirmation process. Mckernan comes from the FGIC. He has a reputation of being a serious regulator. He was previously on the Hill for the Senate Banking Committee with then-Chairman Pat Toomey. Like I said, he's known as a serious regulator. He was a senior advisor at FHFA.
Speaker 3:It was an interesting pick given the dynamics around what the Department of Government Efficiency, the Department of Government Efficiency, the DOGE team, has been doing over the CFPB with respect to proposed cuts and layoffs, terminations, freezes of all actions, enforcement, supervisory or otherwise. That said, it does give an indication that the CFPB will continue in some fashion. It's just not clear at this moment what that is. If you look at some of the developments over the last seven days, there have been over a thousand terminations at the CFPB across various positions, you know, in all kind of departments of the Bureau. The freeze at the Bureau remains in effect kind of indefinitely for the time being, pending either further announcements from the acting director or results from various pieces of litigation underway. The litigation that's been filed against the CFPB at the moment is more geared towards the employment component of what's going on there. But it's all to say that everything is pointing to a much smaller bureau, a much less active Bureau, one that is certainly going to take a different approach than, you know, the previous four years. One would argue that there may even be attempts underway to simply let the Bureau kind of attrition out of existence.
Speaker 3:I I absent an act of Congress. That's not entirely possible, unless Congress passes a bill that would repeal Dodd-Frank or abolish the CFPB. It would stop short of that. But I would note one of the most telling examples of the direction in which they are going, at least in the interim, is that the, the acting director, did not request the advance, the monetary advance from the Fed that funds the bureau. So the CFPB is not funded by appropriations, it is funded via an advance from the Federal Reserve. Those advances happen on a quarterly basis.
Speaker 3:I think the CFPB's budget last year was somewhere around $740 million. The first action that the new acting director took upon taking up the role was sending a letter to the Federal Reserve saying that they will not be requesting their quarterly advance. So this is kind of the information we have at the moment, and it's very fluid. But it does seem like more terminations are forthcoming. This is looking a lot more reminiscent to what happened over at USAID, where they had staff of 10,000 and now they have a staff of 250. Or by the end of the day, that's the end goal there. The CFPB is heading in that trajectory, barring any further court decisions. But we shall see.
Speaker 2:Ask me again in two weeks, and I think we'll have a very clear picture so I mean obviously a lot of questions, um, you know, based off all everything you just said. So I'm gonna start with, you know, the first question that that I I have to ask, since it's going back to one of the first things you said and this. I'm going to preface this by saying maybe this is just I, I'm sorry for the pause. I'm trying to frame it up in the most intelligent way I possibly can, but maybe there's not. Why so many acting directors, one after another? Is there a reason for it? Or is it just why not just pick one acting director and just have them write it out? It seems like the administration, or maybe someone else, is assigning acting directors and then they're just passing it off to the next person and passing it off to the next person until McKernan is in place. Why that?
Speaker 3:So it's a couple of things. One, the timing of the inauguration, with where they were in the process on vetting candidates, they obviously were more squarely focused on getting their cabinet nominees named and into the process. The regulator-level nominees came second right. But with respect to the CFPB in particular, it has historically been a. You know this is only the second time around that we've had this scenario, but it was not easy to fill the first time around in a Republican administration. The Bureau was was born out of an all-democratic government at the time of Dodd-Frank's passage. It had no support in in Congress among Republicans. It was not supported by the last administration to to much degree and accordingly, you know, from a qualification standpoint, it's frankly, I think it's it's hard to find interested candidates willing to do the job right. Um, on top of that, I think that there were some previous uh folks who had worked at the Bureau during the first Trump administration who politely declined to take a second tour of duty. There were some others in the mix who are longstanding names, who have been some of the other regulators and you know, for one reason or another they didn't end up landing in that spot and McKernan's name was always kind of out there as a potential as well. I mean, the pool of potential names was always small to begin with, and some of those individuals landed in different positions across the administration immediately and then transition it over. Is that, as new individuals were confirmed, that simply means that someone closer to the ground can take the reins while they wait for a permanent director? It would be quite difficult for the Treasury Secretary, in the midst of being one of the primary negotiators on tax reform with Congress and the international markets and everything that the Treasury Secretary's role entails, to also be kind of an effective dual hat director of the CFPB. In the last administration at the time, mick Mulvaney, who was the director of the OMB, was also, for a period, the acting director of the CFPB, so there's some precedent there.
Speaker 3:But Russ Vogt, the current OMB director, who is currently also the acting director of CFPB he's the guy with the red pen and for uh an administration that is looking to uh cut costs, cut headcount, um, cut regulation, a lot of that uh power and influence uh lies with rest vote. So him being an interim pick for the time being, given what has unfolded over the last two weeks in hindsight, makes perfect sense, right? If that's the goal, then there's no better person for the job than Russ Vogt. He knows the federal budget process and appropriations process like the back of his hand. There are a few in DC who know it at a more technical level than he does, and if there's a way to unwind an agency, you know Russ Vogt's going to know how to do it and do it effectively.
Speaker 3:Now I think that there are fissures in the unity uh, you know, on capitol hill, not to speak for my um, you know my, my republican counterparts, but it seems clear that the uh in conversations with both, uh, you know democrats and republicans on the on the hill and they've said this publicly that they have very little insight into those decisions that are being made over at the Bureau right now, because it's not being done in consultation with Congress, nor are any of the other moves being made by the kind of roving DOGE team. This is not unique to CFPB. You're seeing this kind of across the board at all the agencies at the moment, and so every few days you get a breaking news alert that says the Doge team has arrived at the department of XYZ, and that's what that means. Right, they're there to examine and potentially make similar budget reductions and headcount layoffs.
Speaker 2:Okay, okay, and thank you for walking us through that, so you know. Next question is I mean, obviously, by reducing, you know, the, the staff by whatever percent, they let's say 75, right, you know, the argument is that, as though they're going to, you know, push the type of regulation or enforcement you know back onto the states. Right, you could easily see them doing that, right? You know some states, like California, already have their own version of the CPB, right, right? But then you could easily argue that you know there are some states that truly bleed red, like Alabama, that have a long history of respo enforcement. I mean, so is that really the right play to push it back on the states, necessarily?
Speaker 3:Yeah, I would almost frame it a different way. The key for, I think, for ACUM members, the key thing to remember during this period of time whether it is three months or three years the law is still the law and the regs that are on the books are still the regs that are on the books. Whether or not the current agency is examining or enforcing that's another issue. Regulated entities still need to comply with existing statute, and so we're getting a lot of questions around. What does this mean for existing rules or for rules that were just made final? It's a good question, but there is a. You know, there's an APA process for that, and should the executive branch wish to undo the regs themselves, they've got to go through that process. Right, so just you could fire every single person at the CFPB. It doesn't make the regs go over. Fire every single person at the CFPB. It doesn't make the regs go over. Now, does it allow for entry points for less scrupulous bad actors to roll the dice? You bet it does right, but does it mean that a credit union or a bank who have been complying with these laws for years are simply going to walk away? I highly doubt it, because the liability on the back end of these decisions, whether this is a temporary void in enforcement and supervision or whether it is prolonged. I think the liabilities outweigh any near-term benefits not complying with what we've been complying with all along.
Speaker 3:I would also note, the other day, in his semi-annual testimony to Congress, federal Reserve Chair Powell was asked I think it was by Elizabeth Warren are there any other? You know, is the Fed? Does the Fed have the authority to, you know, enforce these, uh consumer protection laws in the book? Is there any other prudential regulator that has these authorities to enforce um, the, the bureau's responsibilities? Uh, currently and the answer was no right, the answer was there are. You know, there are statutes that are unique to the cfpb from an enforcement perspective and the bureau is solely responsible for enforcing those regulations. So there may be fewer examiners coming through in the months ahead. There may be fewer rulemakings, no doubt, or supervisory opinions coming out in the coming months, but that doesn't mean that um, credit unions should take their eyes off of of regular compliance with existing consumer protection laws by any stretch of the imagination okay, great, all right, just for the sake of time, let's move away from the cfpb.
Speaker 2:as much as I know, we could fill this whole episode with just the cfpb. What else is happening with or in dc Gosh? Where do we start? Let's do a quick hit, yeah, hud.
Speaker 3:Yeah. So you've probably seen recent announcements of significant staff reductions at HUD. Again, I would go back to my earlier comment. This is not unique to HUD. This is not unique to the CFPB. Not unique to the CFPB. There are roughly 200,000, last checked 200,000 federal employees who fall under the designation of probationary. That means someone depending on the agency, that means someone who was hired within the last year or two years. Those employees, unfortunately, are the ones with the fewest protections, right, and so when you're looking at wholesale reduction of workforce, this is, this is, you know, similar to kind of a corporate playbook where the it's the lowest hanging fruit in terms of headcount reduction is is terminating these probationary employees. We've seen over the last you know 48 hours, 72 hours, thousands across Dozens of agencies that have been announced. All the relative point in connection to all of them is that they're all probationary employees.
Speaker 3:Now the HUD piece in particular. Obviously you know 50 percent of you know degree of importance that that Republican administrations probably pay compared to Democratic administrations on the you know the value of HUD in and of itself. There's the regulatory component, where the result in you know, further reductions and proposed consolidation among certain regulators may play a potential role there. And then there's anything that touches what the administration deems in its executive orders as related to issues around DEI. So any initiatives, programs, officials, anyone with a title that is even closely related to the issue, they run the risk of having their position eliminated based off of what was outlined in the president's executive orders early on and shortly after his inauguration. So it's impactful, right.
Speaker 3:We could see significant reductions, and what that means is I've said this on previous podcasts when a regulated entity is seeking to comply, if they can't get someone on the phone from their regulator or from their program manager, that's going to create problems, right, and it's going to create uncertainty in the business community, and we can have differing opinions about which regulations are good regulations and which regulations are burdensome.
Speaker 3:But in many cases, no response is not a good response either. In many cases, no response is not a good response either, and I think that we're. You know there will be a tail on this where it takes time to see some of the implications here. But when you reduce a workforce by this size on this big of a ship this quickly, you're bound to have some collateral damage and you know the verdict will be you know will be out there for a bit, but it's notable and they will be sizable, so and again, this might be a stupid question, but you know, going back Two, three weeks, when you know the administration came out and said you know, here, here's a package, right.
Speaker 2:And I forgot what the package was. It was like six months, eight months, something like that. Oh yeah, the resignation package, right. I mean, I'm assuming not a lot of people took the administration up on that offer, or maybe they did.
Speaker 3:It was below their estimate but above, I guess, my estimate. Okay, um, I think their goal was a hundred thousand, uh, and I think, where you know, by the day of the deadline, which I think was extended for two days, I think they landed. They claimed to have landed somewhere around $75,000.
Speaker 3:$75,000, who took this buyout, which is, I think most observers look at it as legally dubious as to whether the government can actually offer a buyout along those lines, as to whether the government can actually offer a buyout along those lines. There's that, and then there are the you know roughly 200,000 probationary employees who hypothetically are, you know, in the crosshairs. And then there are the folks that will get, you know, fired for I say fired for cause, but fired at will I guess is really the term based off of the nature of their positions. Kind of going back to my earlier comments around DEI as an example, but kind of completing that thought is is this cut?
Speaker 2:50% workforce cut at HUD, the. The result of that?
Speaker 3:that deficit of 25 000 the deficit of 25 000, you mean the deficit of 75 000 well, you said they, they fell short of they.
Speaker 3:Got the 75 000 right oh, I see what you're saying. So because they fell short on their, on their goalouts? No, I think it's parallel. One is not mutually exclusive from the other. Right, these other terminations were going to happen regardless.
Speaker 3:The buyout offer is, arguably it's gravy on top of the plans already underway. Right, Because the ultimate goal here is federal workforce reduction and, in turn, savings for the federal bottom line. Right, Again, taking opinions out of the equation here, just objectively speaking, if you look at it in its simplest forms. That is the equation here, just objectively speaking, if you look at it in its simplest forms. That is the end goal. Right, Make government smaller and save the government money and, in turn, save the taxpayer. That's the message. And how they get there. I think it's. You know it's fluid. Right, they have many options. You know they also Could determine that Three months from now that this buyout isn't actually Legal or they don't actually have the funds to pay people for six or nine months without actually working. There are limits on existing buyout packages within the civil service that are much lower threshold than what these would amount to.
Speaker 2:And that's the risk that some of these individuals are taking about whether this buyout will actually be honored or whether, two months from now, they'll actually just be terminated. So, moving on from this, what else?
Speaker 3:do? We got going on in DC, so we have an active financial services committee and Senate banking committee gearing up. There was a slate of kind of what's called an introductory hearings during the month of February where it was really kind of an entree point into several of their key issues, right? So there was a hearing on digital assets, there was a hearing on capital capital formation, or there will be at the end of the month, there will be at the end of the month, um, that there has been increased chatter around um housing, gse reform, the, and then the CFPB reform package. Um, that one's a little more amorphous at the moment because in some respects the executive branch is kind of handling that for now. So I could see that kind of taking a kind of a backseat to some of these other issues.
Speaker 3:And there's the Chairman Hill's effort around a kind of a community bank-centric piece of regulatory relief legislation. I think that the official term of it is make community banks great again. So naturally it poses the question hey, well, what about credit unions? Right? I think that the name of that bill is somewhat of a misnomer in the fact that it's likely to result in a piece of legislation that probably has provisions in it that are beneficial to both credit unions and community banks. There may be some community bank-specific legislation in the bill. There are opportunities for credit unions to engage as well and seek credit union-specific provisions. But the goal here is really targeting relief for community financial institutions.
Speaker 3:But French Hill, as a former banker, naturally has naming rights on that legislation. So there's potential for that bill to be marked up sometime in March. You know they're still very much in the kind of the feedback stage on that, but it's something that we're keeping an eye on as an opportunity for. If I could just say one thing on GSE reform, real quickly, no-transcript way to make law with respect to housing is through a bipartisan effort and he seems, you know, ready to jump in on that. On GSE reform, though, he commented that he thinks it's important, he thinks that the GSE should come out of conservatorship, and then he reiterated similar sentiments of Chairman Hill that it really needs to be the administration to take the lead on that front and that they will look to the FHFA and Treasury to initiate that process and give them plenty of runway to start executing on those plans before Congress steps in and gets involved in them.
Speaker 1:Okay.
Speaker 2:One of my favorite topics. It's just it's not going to go away. Not going to go, maybe in three years, maybe in three years we'll start talking about it. And then not going to go, maybe maybe in three years, maybe in three years we'll start talking about it and then we'll talk about it again in four years. It's just one of those things. Right, that's right, that's right. Well, you know, you know, just look at the time. You know I hate to do it because I know there's a lot going on, but we do have to wrap up. Zach, thank you very much for your time today. Truly do appreciate it. Thanks, peter. Zach, thank you very much for your time today.
Speaker 2:Truly do appreciate it thanks, peter, always good to chat, of course as always, we appreciate everything that our friends over at Brownstein do for us and our community. And to all of you, we know your time is valuable. Thanks for tuning in to the latest episode of Aquas on White Podcast. We hope you enjoyed it. Until next time. Be well, my friends.
Speaker 1:Thanks for listening. We'll see you next time at the Acuma On Point podcast. If not already, be sure to subscribe and give us a five-star rating For more great episodes and information. Be sure to visit us online at acumaorg and to get the latest updates. Head over to our LinkedIn page.
