New York City’s financial watchdog is raising the alarm about the Trump administration’s cull of a key federal agency that oversees consumer financial protection laws, warning it will usher in an “open season” for fraudsters.
Brad Lander, New York City’s comptroller and a candidate for the city’s mayoral race, said the uprooting of the Consumer Financial Protection Bureau (CFPB) will leave many Americans vulnerable to scams and predatory lending as the federal agency’s oversight and regulatory powers have been significantly diminished. Lander is calling on state and local governments to make up for the gap in oversight.
“Without the outreach and investigations, casemaking and prosecutions, I fear it will be open season, and these bad actors will just ramp things up again, knowing they’re not likely to get caught,” Lander said in an exclusive interview with the Guardian.
Created in the wake of the 2008 financial crisis, the CFPB has recovered more than $17.5bn for consumers in compensation, debt cancellation and other relief measures, along with collecting $4bn in penalties through its enforcement of consumer protection laws.
Though few Americans ever have direct interaction with CFPB, the agency has played a key role in regulating financial markets, tracking consumer complaints and filing litigation against companies that have been accused of defrauding consumers. In 2022, Wells Fargo agreed to pay $3.7bn – $2bn to consumers and a $1.7bn penalty – after the CFPB charged it with a host of scams and frauds against consumers, including charging illegal fees.
Republicans have long been critical of the agency, accusing it of regulatory overreach. CFPB is now in the crosshairs of the so-called “department of government efficency” (Doge), which was until recently led by Elon Musk.
The White House has targeted the CFPB for severe cuts, putting nearly 1,500 of the agency’s 1,700 employees on notice for layoffs, which would amount to a 90% reduction of staff. Employees were reportedly told that CFPB would exist “in name only”.
Though the CFPB layoffs have been tied up in court – a federal appeals court temporarily blocked the firings and scheduled a hearing for mid-May – Lander said the agency had already been substantially weakened since Trump took office.
“Even if they keep their jobs technically and get paid, it’s clear that the CFPB is already a shadow of its former self and not working to protect consumers from predatory lending, junk fees, fraud and so many other things,” Lander said.
This has meant that borrowers, particularly those with student loans, have been made especially vulnerable to unfair practices that are common in the industry.
When Claire Bleiler checked her credit score in March, it had dropped by 100 points.
Upon investigating the reason for the sudden change, she learned that she was nearly 120 days late for her student loan payments, which she had on autopay.
Confused and frustrated, Bleiler learned that her student loan servicer had turned off autopay. The company told Bleiler there was nothing that could be done and that she should continue to make her payments as normal.
It takes years to build a credit score back up, and delinquencies stay on a person’s credit history for seven years.
“What this means for my life is devastating for me.” Bleiler said. “I have worked very, very hard. I became aware very early on that the only way to get a loan, the only way to build money, was to have a decent credit score.”
The pandemic threw millions of Americans with student loans into a tailspin as federal student loans were put on pause for more than three years, covering two presidential administrations, in recognition of the impacts of the Covid-19 pandemic. The on-ramp back to regular loan repayment has been rough, particularly with the start of Donald Trump’s second term.
An estimated 9 million borrowers have seen their scores drop over the last few months, according to the Federal Reserve Bank of New York, as companies that manage student loans have started to report delinquencies to the credit-reporting agencies for the first time since the start of the pandemic.
In December, the CFPB released a report that found student loan servicers were conducting a range of unlawful activities, including misleading borrowers and not carrying out instructions for repayment.
Typically, the CFPB would follow up on such a report to make sure that companies took corrective actions, but Lander and other watchdogs say the CFPB has abandoned such responsibilities.
And among the more than dozen lawsuits against companies that the CFPB has dropped since Trump’s second term started is a lawsuit against National Collegiate Student Loan Trusts, a private student-loans lender that the agency had accused of scamming borrowers. The company was set to pay a $2.25m settlement with borrowers before the agency dropped the suit.
With such a gap in enforcement and oversight, Lander is calling on state and local lawmakers to boost their own consumer protection laws and help vulnerable consumers.
A candidate in the crowded New York City mayoral race, Lander has a consumer-protection platform that includes using city resources to monitor for deceptive lending practices, requiring fee transparency to get rid of junk fees, keeping track of consumer complaints and helping consumers with potential litigation.
He pointed to New York’s price-gouging law in 2020 that prohibited businesses from raising prices excessively on essential goods and services during the Covid-19 pandemic as an example of how a local government has protected its consumers. The city also used some of its Covid-19 aid to buy back medical debt for some New Yorkers.
Lander’s plan has been praised by former financial watchdogs, including the former Federal Trade Commission chair Lina Khan and Lorelei Salas, former head of the CFPB’s supervision policy.
“Some people may not be aware of what the CFPB does, but the authority of the bureau impacted everyone, whether you are someone who is taking out a loan for a car or a mortgage. But also, even if you haven’t done that, you simply have a bank account and you’re being assessed for all kinds of junk fees,” Salas said. “It’s the time to have these states and municipalities step up and do what they can to fill the gaps.”
