Last week’s U.S. Senate confirmation hearings for both Jonathan McKernan, as Director of the Consumer Financial Protection Bureau (CFPB), and Bill Pulte, as Director of the Federal Housing Finance Agency (FHFA), reaffirmed that major changes within the agencies are afoot.
Despite the assurances from McKernan that the CFPB would continue to perform its necessary functions in accordance with the law, a few U.S. Senators remain suspicious.
Senator Elizabeth Warren (D-MA), who championed the creation of the CFPB after the 2008 financial crisis, questioned McKernan on these actions. He responded that there is at least some activity going on at the CFPB.
“Ranking Member [Warren], I don't know the specifics of the mandate [from Acting Director Russell Vought], but I'm fairly certain there were exceptions there,” McKernan said. "Indeed, to get my application processed so I could get here today, my application had to go through the CFPB.”
Yet, in the middle of McKernan’s confirmation hearing, Feb. 27, an explosive lawsuit was filed against Acting Director Russel Vought by the National Treasury Employees Union, representing current and former employees of the CFPB. The case, National Treasury Employees Union v. Vought, contains a series of declarations (some written pseudonymously) detailing a desire to strip the agency all the way down to “five men in a room.”
CFPB Drops Several Legal Battles
Under the Biden administration, the CFPB targeted and sued a number of lenders and brokerages over alleged RESPA violations. But the CFPB has been under a “stop work” order since Acting Director Russel Vought stepped in.
Since then, at least six outstanding enforcement cases filed during the term of former Direct Rohit Chopra were dismissed with prejudice in the past week.
The CFPB dropped its case against:
- Capital One: Accused of illegally cheating customers out of more than $2 billion in interest payments.
- Pennsylvania Higher Education Assistance Agency: Accused of pressuring student loan borrowers to pay debts that were already discharged in bankruptcy.
- SoLo Funds: Accused of deceiving borrowers into thinking they were getting interest-free loans.
- Rocket Homes, The Mitchell Group, and broker owner Jason Mitchell: Accused of a kickback scheme giving incentives like referrals to real estate brokers in exchange for steering customers to its mortgage lending products.
- Vanderbilt Mortgage: Accused of issuing mortgages without determining a borrower’s ability to pay, and claimed the lender approved a mortgage for a family with 33 different debts in collection.
- TransUnion and longtime executive John Danaher: Accused of violating a 2017 order against deceptive marketing practices.
However, Vought decided to continue a 2022 case against the fintech lender MoneyLion, according to a court filing. CFPB officials accuse MoneyLion of charging military service members illegally high interest rates and trapping borrowers in high-price memberships.
Notably, the CFPB’s case against manufactured-home lender Vanderbilt Mortgage, a unit of Warren Buffett’s Berkshire’s Clayton Homes, filed Jan. 6, also cited 221 consumer complaints filed in the agency’s database between 2011 and 2024.
Consumers Go Unanswered
The webpage for the CFPB Consumer Complaint Database is currently live online, but a message at the top of the webpage states: “We’re currently experiencing technical issues that have delayed the refresh of data on the Consumer Complaint Database. We expect to refresh the data in the next few days.”
In its frozen state, CFPB employees are not able to review new complaints filed to the database, according to a lawsuit.
Plaintiff Matthew Pfaff, chief of staff for the Office of Consumer Response, claims that new complaints “...are not being reviewed, because there’s nobody available to review them.”
In his declaration, Pfaff alleges an estimated 10,000 consumer complaints are being held in limbo, calling it a “large and unprecedented backlog.” Those complaints allegedly include:
- Complaints about companies not already in the database that are not being added.
- Complaints with misspelled company names that are not being corrected or included.
- Complaints with incomplete information that are not being processed.
- Complaints that are automatically forwarded to companies but not being monitored.
- A lack of oversight to ensure companies are responding.
- Systems that are not being properly maintained.
- Complaints requiring coordination with other CFPB divisions, such as the Office of Servicemember Affairs and the student loan ombudsman, that are not being forwarded or addressed.
- The cancellation of the contract for virus-scanning software used for the database.
According to declarations, Martinez also dissembled the CFPB’s operating balance of $711 million, which he claimed was sufficient for ongoing operations. But much of that money is obligated to consumers in relief settlements, the plaintiffs allege.
“Defendant Vought’s decision to prevent the CFPB from drawing down more funding and ordering the CFPB’s workforce to cease all supervision and examination activity reflects an unlawful attempt to thwart Congress’s decision to create the CFPB to protect American consumers,” the plaintiffs claim. “Defendant Vought’s actions thus violate separation of powers and undermine Congress’s authority to set and fund the missions of the CFPB.”
Contracts Terminated
In a pseudonymous declaration, CFPB Contracting Officer ‘Charlie Doe’ alleges that on Feb. 11 all contracting officers received an order via email to begin rapidly terminating the vast majority of the CFPB’s contracts.
“We were directed to ‘terminate all Enforcement (102 contracts), Supervision (16 contracts), External Affairs (3 contracts), Consumer Response (20 contracts), Office of Director (33 Contracts), and Legal Division (all except 2 contracts – FD Online licenses and litigation data)," he claims.
“They included contracts for maintaining the consumer complaint database,” claims the pseudonymous contracting officer. “They included contracts for maintaining the consumer complaint database; scrubbing the database of personally identifiable information; enabling consumer complaint information to be shared with the public and with states, localities, and other federal agencies; and protecting the complaint database from computer viruses.”
Additionally, the contracting officer claims that all expert contracts, including contracts with experts in pending litigation, were canceled. This includes contracts for training bank examiners and administering the required certification test for employees. Additionally, contracts ensuring the CFPB’s website and public information comply with the Americans with Disabilities Act were also terminated.
Notably, the declaration adds that the termination of contracts is not easily reversible.
The contracting officer claims, “If a contract is fully terminated, that termination cannot simply be rescinded. Federal Acquisition Regulations govern the process agencies must go through to requisition goods or services, and once a contract is fully terminated, procurement must go through that process. Unless the agency can justify awarding the contract without having a competitive bidding process, it will need to go through that entire process again.”
The process to procure each contract, he estimates, would take six months to over a year.
However, the contracting officer also claims that a small number of contracts were quickly reinstated after they were initially canceled, such as the CFPB Consumer Complaint Hotline. Once the media picked up the story that the CFPB’s hotline was stone-cold dead, he claims the contract was restored.
But, the contracting officer further claims in his declaration, “Because the contract to maintain the database that houses those complaints remains canceled, the database is quickly degrading.”
“And I understand that there is a backlog of thousands of complaints that have not been forwarded to financial institutions,” he continued in his declaration. “The vast majority of the contracts the Bureau needs to perform its functions remain terminated, and they have not been replaced.”
For this, the plaintiff alleges the government will incur— and already has incurred — substantial expenses. The government must pay contractors to terminate contracts and, potentially, pay them again to restart those contracts, which involves rehiring employees, recreating or restarting any databases or software, re-purchasing any necessary tools and more.
Additionally, Lorelei Salas, the former director of supervision, claims that the terminated contracts included those for training bank examiners, ensuring a long process of rehiring even after those functions are restored, meaning that banks and other financial institutions will not be effectively supervised.
It also included contracts for storing and transferring data and maintaining the CFPB website. Only two contracts were retained: one for storing litigation data, and another for the database of employee financial disclosure information.
The Plaintiff alleges that Martinez lied in his declaration when stating the consumer complaint database is “intact and operational.” Other declarations claimed that Martinez was not telling the truth to the court, either.
'Five Men And A Phone'
Even today, employees who message the CFPB’s human resources office get an auto-response referring to their “recent or impending separation,” suggesting that the plan for mass terminations is still operative.
According to the declarations, all of the CFPB’s buildings would be returned to the agencies where CFPB originally leased them; signage has been taken down at the main headquarters in Washington. An email provided in Adam Scott’s declaration claims that the CFPB homepage was deliberately deleted (a 404 message currently greets visitors) at Vought’s direction, and there was no authorization to fix it.
The CFPB would exist “in name only,” according to the declarations, and everything at the building would be removed or destroyed. No data could be stored anywhere, and internal compliance with federal laws would not exist.
One of the Plaintiffs using the pseudonym “Alex Doe” claims in his declaration that he witnessed a Feb. 13 meeting between CFPB leadership and the Office of Personnel Management, where a three-step process was discussed.
“First, all probationary and ‘term employees’ (which have a fixed term of employment) would be fired, which occurred that day,” the plaintiff “Alex Doe alleges in his declaration. “Then, entire offices, divisions, and units would be let go, a culling of roughly 1,200 employees, which was supposed to happen the next day, on Valentine’s Day. Finally, the bureau would ‘reduce altogether’ 60 to 90 days later.”
Alleged by another declaration using the pseudonym “Drew Doe,” the administration's intention was to fire everyone except for the five statutory positions named specifically in the Dodd-Frank Act, which established the agency.
“One Senior Executive said that CFPB will become a ‘room at Treasury, White House, or Federal Reserve with five men and a phone in it,” the declaration reads.
