For years, American banks have battled the Consumer Financial Protection Bureau (CFPB), calling it an overreach of government authority. Now, with the agency on the verge of being dismantled by the Trump administration, banks find themselves in an ironic position—realizing they may actually need the watchdog to maintain a level playing field in financial regulation.
The Unexpected Shift in Perspective
The CFPB, originally established in the wake of the 2008 financial crisis, was designed to oversee both banks and non-bank financial institutions. However, the Trump administration’s latest efforts to weaken the agency may be backfiring. If the CFPB is dismantled, banks will have to compete with financial technology firms (fintechs) like PayPal, Cash App, and Stripe, which operate with far less federal oversight.
“The CFPB is the only federal agency that supervises non-depository institutions, so that would go away,” said David Silberman, a banking attorney and lecturer at Yale Law School. Without the CFPB’s oversight, fintech firms could function with fewer restrictions, creating an uneven regulatory landscape.
A Return to Pre-2008 Risks
Silberman warns that eliminating the CFPB could bring back the risky financial environment that contributed to the 2008 economic crash. Before the CFPB’s creation, state regulators were responsible for policing nonbank lenders, often leading to inconsistent enforcement.
“If you’re the big banks, you certainly don’t want a world in which the non-banks have much greater degrees of freedom and much less regulatory oversight than the banks do,” Silberman added. The rise of digital banking has already changed the financial sector, with fintech firms like Chime and PayPal adding as many new accounts last year as all large and regional banks combined, according to Cornerstone Advisors.
Mass Layoffs Threaten the CFPB’s Survival
Since Acting Director Russell Vought took over, the CFPB has been thrown into chaos. A stop-work order has frozen operations, and about 200 employees have already been laid off. Vought, working with the Department of Government Efficiency led by Elon Musk, has further planned to cut 800 enforcement and supervision employees.
Even some of the CFPB’s harshest critics, such as the Consumer Bankers Association (CBA), recognize the need for the agency’s oversight. Lindsey Johnson, president of the CBA, emphasized that while banks have challenged CFPB rules, they still support necessary regulatory examinations.
“We believe that new leadership understands the need for examinations for large banks to continue, given the intersections with prudential regulatory examinations,” Johnson stated. She also acknowledged that the CFPB remains the only examiner of non-bank financial institutions.
Legal Battles and Industry Backlash
Efforts to dismantle the CFPB have now reached the courts, with a federal judge blocking further layoffs while evaluating a lawsuit from the agency’s union. As the legal process unfolds, banks have begun voicing concerns over what a CFPB-free financial market might look like.
JPMorgan Chase CEO Jamie Dimon, who previously encouraged banks to “fight back” against regulators, now faces a different reality. His bank had even considered suing the CFPB over its investigation into peer-to-peer payment services like Zelle.
“We are suing our regulators over and over and over because things are becoming unfair and unjust, and they are hurting companies,” Dimon said at a recent banking convention. However, there is growing realization that completely eliminating the CFPB would create more problems than it solves.
Banks Face a New Regulatory Nightmare
If the CFPB ceases to exist, non-bank financial firms could operate with little to no federal oversight, while banks would still face strict regulations from the Federal Reserve, FDIC, and Office of the Comptroller of the Currency.
“The conventional wisdom is not right that banks just want the CFPB to go away, or that banks want regulator consolidation,” said an executive from a major U.S. bank who preferred to remain anonymous. “They want thoughtful policies that will support economic growth and maintain safety and soundness.”
Meanwhile, a senior CFPB lawyer who recently lost his job pointed out the irony of the situation. “They’re about to live in a world in which the entire non-bank financial services industry is unregulated every day, while they are overseen by the Federal Reserve, FDIC, and OCC,” the lawyer explained. “It’s a world where Apple, PayPal, Cash App, and X run wild for four years. Good luck.”
A Double-Edged Sword for Banks
For years, banks fought against the CFPB, but its potential disappearance now presents new risks. Without the agency, financial technology firms could gain an unfair advantage, creating a more volatile and less regulated industry. While the CFPB has faced criticism, its role in maintaining regulatory balance is now clearer than ever. As legal battles continue, the financial sector faces an uncertain future—one where banks may regret ever wanting the CFPB to disappear.