Jonathan Raa/NurPhoto via AP
We’re in a strange situation this week where a nominee will sit for a confirmation hearing to run the Consumer Financial Protection Bureau, an agency that functionally does not exist at the moment. Acting director Russ Vought’s initial plan to fire everyone and defund the agency has been blocked in the courts, with a hearing scheduled next week. The remaining 1,500 or so employees who weren’t fired in the probationary purge are currently on administrative leave, something that can only be done for ten work days per year, meaning that it should have ended last Friday.
Yet the freeze continues, and Vought is trying his best to sabotage the agency from within. Thirty-eight active enforcement cases have been frozen in the courts, with lawyers asking for indefinite pauses. At least one, against SoLo Funds, has been dropped, Vought praising the “zero-interest loan” company without mentioning that it deceived borrowers into leaving mandatory “tips” that amounted to interest rates of as much as 1,000 percent. Legal action against CFPB rules has also gone undefended, leading legal advocacy groups to step in. The student loan ombudsman, a statutory position, was illegally fired. For some reason, Jeffrey Clark, the Stop the Steal coup plotter at the Department of Justice during the Trump-Biden transition, is a top official at the agency now.
Into all of this steps Jonathan McKernan, a former board member at the Federal Deposit Insurance Corporation who has a confirmation hearing for CFPB director on Thursday. If you were to ask me who would be the expected nominee to run the CFPB a month ago, I’d have said someone like McKernan, a pro-business conservative caretaker who would be light on enforcement. But these are not normal times, and Sen. Elizabeth Warren (D-MA), ranking Democrat on the Senate Banking Committee, has to ask McKernan in advance of the hearing things like “will you refuse to execute any unlawful directives” and “will you commit to resuming all supervision and examination activity?”
McKernan will likely be confirmed whether he commits to restarting the agency or not. But given that Congress hasn’t disestablished the agency or repealed the rules it oversees, the CFPB will still exist in a state of suspended animation, with enforcement turned off but its authorities to pursue violations of law intact. Exposing the American people to financial scams is unpopular and will weigh down McKernan, maybe even enough to restore a facsimile of activity at the CFPB.
That’s why it’s interesting to look at the one area where Republicans are playing by the book, to legally strip power away. That will tell you what this shutdown is all about. Using the Congressional Review Act (CRA), Congress can nullify agency regulations passed within the last 60 legislative days of the previous term with a simple majority in the Senate. So what CFPB actions are Republicans definitively trying to kill?
Why, scrutiny of Big Tech’s payment app empire, of course.
It’s no secret that Musk wants to build X into a payment app.
Last week, only one CFPB rule showed up on a priority list of CRA resolutions from House Majority Leader Steve Scalise (R-LA): the so-called “larger participant” rule that gives the agency supervisory authority over non-banks engaged in digital payment app transactions. Other CFPB rules, like capping overdraft fees and removing medical debt from credit reports, did not appear among the priority list; neither did more permissive changes to bank merger rules, which has been a priority of some senators.
In other words, Republicans are primarily focused on boosting Elon Musk and other Big Tech CEOs as they enter digital payment markets, determined to make managing and transferring money a regulatory-free zone. The move to revoke the larger participant rule takes enforcement decisions out of McKernan’s hands, and reveals the degree to which congressional Republicans are doing Musk’s bidding, even when it angers their traditional allies at the big banks.
As Sen. Warren said at a field hearing on Tuesday, “Trump and Musk aren’t shutting down the CFPB because it’s good for consumers—they are doing it to advance their own financial interests.”
It’s no secret that Musk wants to build X into a payment app. The company announced a partnership with Visa in January to support peer-to-peer payment transactions and a digital wallet. X Money would be a candidate for the kind of supervision the CFPB set up for non-bank firms. Eliminating the CFPB “would leave him free to scam and steal however he wants,” Warren said at the hearing.
The way the larger participant rule works is that the agency has the authority to supervise non-banks, but then must add each individual company one by one. In December, the CFPB added supervision of Google’s payment apps. (Google is suing to block that supervision.) If the larger participant rule is blocked, the agency can still enforce laws around deceptive or unfair conduct, or violations of various consumer protection laws, against Big Tech firms, as it has done previously against Apple and the payment app Zelle. But there would be no way to send examiners into X to study its payment services, which would make it harder to identify scams and force compliance.
Moreover, by commandeering the CFPB’s existing supervisory information, Musk’s DOGE team can look at confidential, proprietary data about Musk’s competitors, potentially giving X a leg up.
The larger participant rule was the result of years of work at the agency, taking on some of the fiercest resistance that the agency has ever faced, according to former CFPB leadership. That included venture capital firms like Andreessen Horowitz, which have invested in payment apps that faced CFPB scrutiny and enforcement. Advocacy groups funded by X and other tech firms have sued to stop non-bank supervision in the payment app space.
The rule has also been a preoccupation of the early Trump administration. When control of the CFPB first transferred to Treasury Secretary Scott Bessent, he belatedly added an order specifically preventing new large participants from being chosen for supervision under the rule. Vought continued this restriction.
Practically alone among rules promulgated under director Rohit Chopra’s tenure, the larger participant rule received a positive reception from the banking industry. The CFPB does have the ability to supervise bank services, so extending that authority to non-banks would ensure no escape from regulatory scrutiny. Last November, the Consumer Bankers Association and the American Bankers Association praised the extension of supervision authority to non-banks with payment apps. “It is essential that the same consumer protections that are provided by banks to their customers be provided by nonbanks to their own customers when those nonbanks offer the same services,” the ABA and CBA wrote.
By contrast, banks are incensed at Chopra’s “open banking” rule that makes it easier for consumers to move their money out of financial institutions. But fintech apps want to see that rule in place, hoping to benefit from customer shifts. In fact, earlier this month the Financial Technology Association intervened to defend the open banking rule from a Bank Policy Institute lawsuit challenging it.
Yet the open banking rule isn’t first in line for congressional nullification; the larger participant rule is.
A resolution to cancel the larger participant rule has not yet been scheduled by Scalise. Two other CRA resolutions, involving waste emissions for fossil fuel systems and energy conservation for water heaters, were put on the calendar this week. Congress has until mid-May to act on CRA resolutions.
The Trumpified CFPB has focused its downsizing efforts on removing technologists at the agency, the very employees with the kind of expertise to crack down on payment app abuse. This has left nobody to manage the agency’s Consumer Complaint Database, where people can formally submit complaints about being ripped off in financial transactions. According to a Senate Banking Committee minority staff report, responses to the database have fallen by 80 percent since Trump took office, from more than 10,000 complaints per day to around 2,000. Among other problems, new companies cannot be added to the database system, a protection specifically for new payment apps that have entered the market.
In her letter to McKernan, Warren cited ethics rules that bar Musk, as a special government employee, from participating in government decisions that would affect his financial interests. The Trump administration has said that Musk is merely an adviser to the president with no decision-making authority.
