Our Take: financial services regulatory update – February 14, 2025

• What happened at the CFPB? The past week featured several actions continuing from Treasury Secretary Scott Bessent’s freeze of CFPB activities:
  • Over the weekend from February 7^th and 9^th, Office of Management and Budget (OMB) Director Russell Vought was named Acting CFPB Director. He then closed CFPB headquarters; ordered staff to cease stakeholder engagement, supervision and examination activity; and notified the Fed that the CFPB would not take its next draw of funding.
  • On February 11^th, the CFPB and OMB chief legal officer directed the CFPB Assistant Director of Research to “continue all necessary functions,” including updating and publishing average prime offer rate (APOR) tables necessary to designate qualified mortgages (QMs).
  • Also on February 11^th, the CFPB terminated over 70 probationary staff members and the heads of supervision and enforcement resigned.
  • On February 14^ths, Judge Amy Berman Jackson granted an injunction in response to emergency motion filed by the National Treasury Employees Union filed to stay further anticipated layoffs at the CFPB and return of funds to the Fed while the court considers its lawsuits concerning access to employee records and the activity freeze.
• What’s next? Lawsuits concerning the CFPB shutdown will continue to play out as McKernan goes through the confirmation process.

Our Take

Lights off at the CFPB (for now). While the CFPB awaits a permanent Director – and an answer as to its ultimate fate – Vought both further cemented the current freeze and tacitly acknowledged that some CFPB functions need to continue. Apart from mortgage rate tables, the CFPB website and consumer complaints database remain active, providing a continued avenue for consumers to seek recourse and for financial institutions to monitor trends. While supervision and enforcement activities have been paused, compliance obligations for financial institutions under consumer protection laws remain in effect. These laws can be enforced by state banking regulators and state attorneys general. In the end, consumer compliance examinations are expected to continue through a surviving federal supervisory agency, whether that is a smaller CFPB or another supervisor such as the OCC or the Fed. Lapses in consumer protection can also damage banks’ competitive standing and attract criticism from both sides of the aisle. With this in mind, regardless of the CFPB’s fate, banks should maintain policies, procedures and controls to effectively manage consumer-related compliance and legal risk.

• What did Powell say? Fed Chair Jerome Powell testified before the Senate Banking Committee on February 11^th and the HFSC committee on February 12^th. In addition to saying that “no other federal regulator” is administering consumer compliance examinations at large financial institutions, he commented on the following topics concerning financial regulation:
  • Basel III endgame and stress testing. Powell said that the Fed is eager work with new colleagues at the FDIC and OCC to finish Basel III endgame “fairly quickly." He also expressed his view that Basel III endgame was not intended to raise capital requirements and that U.S. banks are currently well capitalized. With respect to the Fed’s annual stress tests, Powell acknowledged ongoing litigation and said the Fed plans to make its models available for public comment before they are implemented.
  • CFPB. In response to a question from Senator Elizabeth Warren (D-MA) as to who is administering consumer compliance examinations at large financial institutions, Powell said “I can say no other federal regulator.”
  • Supervision. In an exchange with Representative Bill Huizenga (R-MI), Powell acknowledged that before the Vice Chair for Supervision (VCS) position was filled, regulatory matters went through the full board and that “putting it all in a single person, admittedly, just to recommend to the board can lead to a sort of volatility…”
  • Debanking. Powell committed to working with legislators to end debanking, including by revising supervision manuals to remove reputational risk.
  • Digital asset and fintech policy. Powell committed to not issuing a central bank digital currency (CBDC) while he is Fed Chair. He also said the Fed has no plans to allow nonbanks to access its payment rails.
  • DOGE. Powell said that he had not yet had any interactions with DOGE personnel. He also disagreed with allegations that the Fed is “absurdly overstaffed” and noted the importance of having staff with deep experience to handle crises like the pandemic.
• What’s next? Current Fed VCS Michael Barr will step down from that position by February 28^th while remaining a member of the board.

Our Take

The Fed will stay the course. Although he appears open to a change in the allocation of supervisory responsibilities within the Fed as Barr’s VCS term comes to an end, this does not seem to affect his confidence that key regulatory initiatives, such as Basel III endgame and stress testing, will move ahead – albeit with adjustments to reduce capital impact. His testimony also included the clearest indication yet that the current focus on debanking will lead to concrete policy changes such as the removal of reputational risk from supervisory manuals. Even if consideration of reputational risk is not formally removed from supervisory manuals at the Fed or other regulators, banks are likely already adjusting their customer acceptance processes to ensure rejections are defensible (e.g., by documenting relationship to other risks such as credit, legal or operational). Banks might still reject clients for reputation-related reasons such as conflict with their ethical or moral values but will have to carefully consider those that are especially politically sensitive.

• What happened? On February 10th, President Trump issued an EO that temporarily suspends new investigations and enforcement actions under the Foreign Corrupt Practices Act (FCPA) for 180 days. Since 1977, the FCPA has prohibited U.S. companies from bribing foreign government officials. The White House also published a fact sheet stating that FCPA overenforcement puts U.S. companies at a disadvantage by holding them to a higher standard than foreign competitors and infringes on the President’s authority to conduct foreign policy. These releases followed a February 5^th memorandum from Attorney General Pam Bondi calling for the DOJ to prioritize FCPA investigations relating to the criminal operations of cartels and transnational criminal organizations (TCOs).
• What happens during the pause? The EO directs Attorney General (AG) Pam Bondi to:
  • Review existing FCPA investigations and enforcement actions for alignment with Presidential foreign policy prerogatives;
  • Issue new guidelines to “prioritize American interests, American economic competitiveness with respect to other nations, and the efficient use of Federal law enforcement resources;”
  • Determine whether remedial measures for past FCPA investigations are necessary based on the updated guidelines; and,
  • Extend the review period by another 180 days if necessary.
• What’s next? The 180 day review period will conclude on August 9^th, 2025. When FCPA enforcement resumes, the EO mandates that investigations and enforcement actions will adhere to the new guidelines or policies set forth by the AG.

Our Take

An enforcement pause does not open the doors for bribery. Although the EO immediately pauses DOJ enforcement of the FCPA, and will likely change enforcement policy going forward, it does not alter the core expectations set by Congress with respect to interactions with foreign government officials. It is also worth noting that the SEC, which is responsible for civil FCPA enforcement, is not mentioned in the EO and has not made any independent statements. FCPA violations generally have a five-year statute of limitations, meaning that violations that happen during this Administration could be subject to enforcement by a future Administration. In addition, although the EO and fact sheet cite a lower bar for enforcement by foreign authorities, the bar still exists and U.S. companies can be cited by these authorities for wrongdoing within their jurisdictions. Finally, regardless of the U.S. enforcement landscape, companies still have commitments to investors, contractual obligations to business partners and reputational risk stemming from perceptions of impropriety. Accordingly, U.S. companies, including financial institutions, should continue operating their anti-bribery programs and maintaining strict oversight of overseas operations, including ongoing internal audit monitoring and investigation of allegations of bribery. Companies should also consider that Trump Administration FCPA enforcement will eventually resume, with a focus on cartels and TCOs.

These notable developments hit our radar recently:

SEC will not defend climate disclosures. On February 11^th, Acting SEC Chairman Mark Uyeda issued a statement explaining that he has directed SEC staff to request that oral arguments not be scheduled in the pending litigation against the climate disclosure rule adopted by the SEC in March 2024. Uyeda noted that the Commission needs time to deliberate and determine its positions in the litigation and the appropriate next steps.

SEC announces CAT PII exemption. On February 10^th, the SEC announced that it would provide an exemption from the requirement to report certain personally identifiable information (PII) to the Consolidated Audit Trail (CAT) for natural persons. The CAT was created to allow regulators to efficiently and accurately track all activity throughout the U.S. markets. Uyeda cited the increased sophistication of bad actors’ ability to use the PII in an event that the CAT is breached as the main reasoning behind the exemption.

OCC withdraws from NGFS. On February 11, Acting Comptroller of the Currency Rodney Hood announced the withdrawal of the OCC from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). Similar to reasons given for the Fed withdrawal from NGFS, Acting Comptroller Hood stated that participation by the OCC in the NGFS extends beyond the OCC’s statutory responsibilities and does not align with its regulator mandate.

CRA on CFPB overdraft rule. On February 13^th, House Financial Services Committee Chairman French Hill (R-AR) and Senate Banking Committee Chairman Tim Scott (R-SC) introduced Congressional Review Act (CRA) resolutions to overturn the CFPB’s final rule capping overdraft fees at banks and credit unions.

Consumer bank CEOs meet with Senate Banking Republicans. On February 13^th, Chairman Scott led a roundtable discussion with leaders from the nation’s largest consumer banks. The roundtable discussion was focused on debanking and other regulatory issues facing the financing institutions. As leader of the Senate Banking committee, Chairman Scott has prioritized addressing debanking.

The following chart is an approximate projection of financial services agency appointments and term lengths.

^{1. Michael Barr will step down as VCS on February 28th, 2025 but will remain on the Fed Board as a Governor. President Trump will need to choose another existing Governor as the new VCS or move them to a position at another agency to create a vacancy at the Fed.}

^{2. The Comptroller of the Currency and CFPB Director are members of the FDIC Board. Because FDIC bylaws prohibit more than three members of one party on the Board, the Vice Chair and Internal Director cannot be Republicans if Trump’s nominees to lead the OCC and CFPB are Republicans. Jonathan McKernan’s term technically expired in May 2024.}

^{3. Johnson’s and Goldsmith Romero’s terms have expired but they may remain on the Commission until their replacements are confirmed.}