By Ray Birch
PHILADELPHIA—Credit unions could see meaningful relief from some federal compliance and examination burdens as the Consumer Financial Protection Bureau continues to undergo restructuring under the Trump Administration, but legal experts are warning that any pullback by the CFPB may be quickly offset by a rise in aggressive state enforcement actions and consumer class-action litigation.
That shifting enforcement landscape—not simply reduced federal oversight—may become the most important development credit unions need to prepare for, according to Mark Kornfeld, co-chair of the financial services litigation group at Fox Rothschild.
“A reduced CFPB is not a license to relax,” Kornfeld said in an interview. “You still have to be diligent in compliance and being ready for regulatory exams. What we predict is a parallel increase from state attorneys general as well as the plaintiffs’ bar.”
The comments come as the CFPB remains embroiled in multiple legal and political battles tied to its funding structure, staffing levels and enforcement authority. The agency has already slowed or dismissed numerous enforcement actions under the current Administration while broader restructuring efforts continue in court and in Washington. Consumer finance attorneys and industry observers have said the likely result will be a smaller CFPB focused on fewer examinations and less expansive compliance oversight.
For credit unions, Kornfeld said one of the clearest operational impacts could come through reduced data collection burdens tied to small-business lending and Section 1071 reporting requirements under the Dodd–Frank Wall Street Reform and Consumer Protection Act. He said proposed changes that would raise reporting thresholds and eliminate certain required data fields could significantly ease compliance costs for many institutions.
“The changes and the alterations ultimately to the CFPB’s organization should sizably reduce credit union burdens when it comes to data collection,” Kornfeld said. “If you’re raising that threshold to about 1,000 transactions and removing certain data points, you’re making it easier for lending for credit unions.”
Larger Risk
But Kornfeld cautioned that the larger strategic risk for financial institutions may come from outside Washington. He said state attorneys general and state financial regulators are likely to move aggressively to fill any perceived enforcement vacuum left by a downsized CFPB, particularly in states with active consumer protection regimes such as California and New York.
“We expect that gap once this sorts out to be filled by the other entities who play in the sandbox,” Kornfeld said. “Often the CFPB and state attorneys general work together as co-plaintiffs, but if the regulatory unit of the CFPB is reduced both in terms of funding and staffing, we predict likely state activity will increase.”
He added that the consumer plaintiffs’ bar may also become far more active if federal enforcement activity continues to decline. Historically, many consumer finance disputes and restitution efforts have been led by federal regulators, with settlement funds distributed through administrative processes. A reduced CFPB presence, Kornfeld said, could encourage more private litigation against lenders, including credit unions.
“What you’ll see is not so much just a reduction in federal enforcement, but a parallel increase in state and civil activity,” he said. “If consumers feel they’ve been defrauded, you will see a fair amount of increase in consumer class-action litigation. That is the expectation as kind of an effect of a smaller CFPB.”
That means credit unions should avoid interpreting regulatory relief as a signal to weaken compliance programs or litigation reserves, Kornfeld warned. Instead, institutions should remain focused on customer due diligence, lending documentation, complaint management and state-level regulatory developments.
“What you don’t want is for people to say, ‘Cool, the CFPB is no longer the same, this is a new normal,’ and then use that as a license to relax,” he said.
At the same time, Kornfeld acknowledged that, at a broad operational level, many credit unions are likely to benefit financially from a scaled back CFPB if examination intensity and federal compliance expectations continue to decline.
“If the federal government is not at the same heightened level of scrutiny, the net effect of that is probably going to be favorable for credit unions at a high level,” he said.