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Joe Smith has been (among other things!) the general counsel of a regional bank, Commissioner of Banks for North Carolina; and the official independent settlement monitor of the National Mortgage Settlement. And Joe has some reflections on these experiences that I recommend reading. One easy way to get started is with his 2026 essay published by The North Carolina Banking Institute.
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The White House’s Council of Economic Advisers has put out a crazy report about the supposed costs of the CFPB. It’s frankly embarrassing to see such shoddy legal and economic analysis come out of the CEA.
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The CFPB is apparently rushing to address the problems posed by it supposedly running out of funding in early 2026: it is looking at taking steps to expedite a revision of the 1033 open banking rule and also trying to find a way to outsource the calculation of the Average Prime Offer Rate (APOR) to private parties. Good luck with that during the holiday season.
All of this suggests that Russ Vought’s hit squad didn’t properly coordinate with the folks who actually know what the Bureau has to do (to the extent anyone’s even left in the building).
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In a prior post I noted that if the CFPB’s funding is illegal, it creates a time bomb for the entire US housing market because the Bureau will not be able to update the Average Prime Offer Rate (APOR) that is used to determine the presumptive legality of mortgages.
The situation is actually worse. If the Bureau’s funding is illegal, it isn’t just a problem going forward. It also implicates the legality of everything the Bureau has done since the Fed stopped running a profit, that is from the 4th quarter of 2022 onward. That is every rulemaking and every enforcement action and every termination of a consent decree becomes suspect if the Bureau’s been acting without legal funding. And that includes the APOR.
If the Bureau’s funding is illegal, then the APOR is arguably frozen at either the end of Q3 or Q4 2022. I think Q4 2022 because until the end of that quarter it wasn’t know if the Fed was running a profit.1 Here’s why it matters. The APOR for a 30 year mortgage was 6.79% at the end of Q3 2022 and 6.28% at the end of Q4 2022. Right now it’s 6.26%, but it’s been substantially higher at points between 2022 and today. That means that some mortgages that would be QM under the APOR that was listed when the mortgages were made would not be QM if the APOR were frozen at a Q3 or Q4 2022 level. That’s a potential mess for lenders, who face putbacks (they would be in breach of their reps and warrants), a borrower defense to foreclosure, and state AG enforcement.
Now it would seem easy enough to say “justified reliance” and grandfather everything old in. But I’m not sure that’s how it will work, and that uncertainty is enough of a problem in and of itself.
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Oh Russell Vought must think he’s so clever bankrupting the CFPB by asking OLC for an opinion letter saying that the Bureau can’t draw funds on the Federal Reserve System when the Fed isn’t running a profit. After all, killing off the CFPB has been his goal all along.
But Vought seems to have forgotten a lesson he learned during his first attempt to shutter the CFPB: doing so could crash the housing market.
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It takes real skill to bankrupt a government agency, particularly one that is barely functioning. Yet that’s exactly what Russell Vought is trying to do. Vought, you might recall, is the acting Director of the CFPB, and last February he made a big show of declining to draw down funds for the CFPB from the Federal Reserve System, claiming that the Bureau had more than adequate funds on hand. Vought then embarked on a campaign to fire most of the CFPB’s workforce, resulting in significant attrition, even if his efforts remain tied up in court. But now Vought—and remember that this is the guy who also runs the Office of Management and Budget—is claiming that the CFPB will run out of money in early 2026. He claims that the CFPB, relying on a newly issued opinion from the Department of Justice’s Office of Legal Counsel, can only draw down funds on the Federal Reserve System when the system runs a profit, which it is not currently doing.
Three observations about this incredibly cynical play.
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You can checkout anytime you like, but you can never leave. That’s how I’m feeling about one of my banks. I recently decided to close a particular bank account. Turns out that the bank, which allows me to open new accounts on-line, won’t allow me to close accounts except in person. Having to go into a branch is a minor inconvenience, and I’m sure that’s the point: the added friction makes it that much harder to break up with the bank and gives the bank another opportunity to try to sell me additional services. What’s more, it gives the bank another shot at levying some fees on the account for one reason or another.
If pressed, I’m guessing that the bank would claim some security issue means that they need to verify my identity in-person. That’s nonsense: they had no problem letting me clear out the balance via an on-line transaction. This is just about making the deposit account relationship stickier and therefore less competitive.
So if there’s still anyone home and listening at CFPB, this should be low-hanging non-partisan fruit: use your UDAAP authority to put out a Hotel California rule that will make it easier for consumers to voluntarily close their deposit accounts. Think of this as the deposit account version of click-to-cancel. If the consumer is able to transfer all funds out of the account on-line—that is if the bank offers on-line funds transfers and there’s no hold on the account at the time—the consumer should also be able to close the account entirely on-line.
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The CFPB has proposed a rule to constrain when it can designate non-banks as subject to supervision. The rule is one of very narrow application: only 20 institutions have ever been so designated over 14 years.
There’s a lot of silliness with the proposed rule, which eliminates none of the uncertainty it claims to address, but here’s what’s really galling: the rule is expected to reduce the total number of exams conducted by the CFPB by no more than one! What’s more the Bureau estimates that an exam costs a non-bank about $27,000 in labor costs. So the Bureau has undertaken the promulgation of an entire rule in order to save one entity $27,000/year. It will cost the Bureau more than $27,000 to promulgate this rule, which will also increase the Bureau’s litigation risk. Talk about a waste of government resources. This might well be the most inefficient regulation I’ve ever seen.
I thought this administration was about getting rid of needless regulations. And here it is creating one. Perhaps instead of a comment letter, I should have filled out the form on Regulations.gov to “Submit Your Deregulatory Recommendations.” smh.
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L'État, c'est moi is what came into my mind when I read the Executive Order on Ensuring Accountability for All Agencies issued by the President today. The executive order is not only the most complete and direct enshrinement of the unitary executive theory we've yet seen from the administration, but it also marks the end of independent regulatory agencies. And coming from a President with a distinct taste for Louis XIV gilt, well, you can understand why my mind wandered to the lord of Versailles.