February 28, 2025 • 29 mins
Join ACUMA President Peter Benjamin as he is joined by Zach Pfister, Policy Director at Brownstein Hyatt Farber Schreck. Together, they will discuss navigating complex shifts within the Consumer Financial Protection Bureau (CFPB) with insights. Have you ever wondered how the changing leadership at a major regulatory agency could ripple through the financial sector? With a wave of terminations, an operational freeze, and no budget request from the Federal Reserve, could we witness a strategic downsizing of the CFPB? As Jonathan McKernan is expected to step in as the new permanent director, our discussion probes the potential future landscape of consumer protection and credit union mortgage activities amidst these changes.
What does this mean for agencies like the CFPB and HUD in an era of federal workforce reductions? Zach helps us dissect the impact of these staff cuts and the resulting uncertainty for the business community, especially as communication with regulators diminishes. We explore the mixed reactions to a recent federal buyout offer and what these developments spell for maintaining compliance and agency functions. With the overarching goal of budget savings, we provide a roadmap of the challenges ahead and the possible reshaping of federal agency roles and responsibilities. Tune in for a meticulous examination of these pivotal developments.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The views and opinions expressed in this
podcast do not necessarilyreflect the views or positions
of ACUMA, its board of directors, its management staff or its
members.
The podcast discussionpresented is conversational in
nature and for generalinformation only.
Speaker 2 (00:32):
Hello, welcome to ACMA's On Point Podcast, the
policy series where we focus onpolicy issues impacting the
credit union mortgage industry.
I'm your host, peter Benjamin.
Joining us today is ourresident expert, zach Pfister,
policy Director with Brownstein,zach, my friend, how are you
doing today?
Speaker 3 (00:45):
I'm doing well, Peter .
It's good to be here.
Speaker 2 (00:51):
I have to call this out.
Your voice sounds a littleraspy, almost as though you've
been yelling at a TV screen orsomething.
I don't know what it is, but Idon't know.
It seems like a lot's going onin DC at the moment and I think
we probably take this episodeand thousands of different
(01:15):
directions.
I went into today thinking, ok,well, how do I not make this
about the CFPB, the CFPB, theCFPB, et cetera?
But there's just too much notto discuss, so I'm going to let
you just jump right in anddiscuss whatever you so choose,
but I imagine CFPB is going tobe on the docket.
Speaker 3 (01:38):
So fire away whenever you so choose, all right.
Speaker 2 (01:43):
After you sir.
Speaker 3 (01:58):
All right After you, sir uh, followed by an acting
director.
Vote uh, russ, vote uh.
Who's the current uh recentlyconfirmed director of the omb?
Um, he's in that position uhfor the time being.
It's possible.
We're hearing rumors that theremay be another acting director?
(02:20):
Uh in the coming weeks.
Some moves being made in theinterim while Jonathan McKernan,
the nominee for the permanentposition, makes his way through
the confirmation process.
Mckernan comes from the FGIC.
He has a reputation of being aserious regulator.
(02:42):
He was previously on the Hillfor the Senate Banking Committee
with then-Chairman Pat Toomey.
Like I said, he's known as aserious regulator.
He was a senior advisor at FHFA.
It was an interesting pick giventhe dynamics around what the
Department of GovernmentEfficiency, the Department of
(03:02):
Government Efficiency, the DOGEteam, has been doing over the
CFPB with respect to proposedcuts and layoffs, terminations,
freezes of all actions,enforcement, supervisory or
otherwise.
That said, it does give anindication that the CFPB will
continue in some fashion.
(03:23):
It's just not clear at thismoment what that is.
If you look at some of thedevelopments over the last seven
days, there have been over athousand terminations at the
CFPB across various positions,you know, in all kind of
(03:45):
departments of the Bureau.
The freeze at the Bureauremains in effect kind of
indefinitely for the time being,pending either further
announcements from the actingdirector or results from various
pieces of litigation underway.
The litigation that's beenfiled against the CFPB at the
(04:07):
moment is more geared towardsthe employment component of
what's going on there.
But it's all to say thateverything is pointing to a much
smaller bureau, a much lessactive Bureau, one that is
certainly going to take adifferent approach than, you
(04:29):
know, the previous four years.
One would argue that there mayeven be attempts underway to
simply let the Bureau kind ofattrition out of existence.
I I absent an act of Congress.
That's not entirely possible,unless Congress passes a bill
(04:51):
that would repeal Dodd-Frank orabolish the CFPB.
It would stop short of that.
But I would note one of themost telling examples of the
direction in which they aregoing, at least in the interim,
is that the, the acting director, did not request the advance,
(05:15):
the monetary advance from theFed that funds the bureau.
So the CFPB is not funded byappropriations, it is funded via
an advance from the FederalReserve.
Those advances happen on aquarterly basis.
I think the CFPB's budget lastyear was somewhere around $740
(05:36):
million.
The first action that the newacting director took upon taking
up the role was sending aletter to the Federal Reserve
saying that they will not berequesting their quarterly
advance.
So this is kind of theinformation we have at the
moment, and it's very fluid.
But it does seem like moreterminations are forthcoming.
(06:01):
This is looking a lot morereminiscent to what happened
over at USAID, where they hadstaff of 10,000 and now they
have a staff of 250.
Or by the end of the day,that's the end goal there.
The CFPB is heading in thattrajectory, barring any further
(06:23):
court decisions.
But we shall see.
Speaker 2 (06:27):
Ask me again in two weeks, and I think we'll have a
very clear picture so I meanobviously a lot of questions, um
, you know, based off alleverything you just said.
So I'm gonna start with, youknow, the first question that
that I I have to ask, since it'sgoing back to one of the first
things you said and this.
I'm going to preface this bysaying maybe this is just I, I'm
(06:50):
sorry for the pause.
I'm trying to frame it up inthe most intelligent way I
possibly can, but maybe there'snot.
Why so many acting directors,one after another?
Is there a reason for it?
Or is it just why not just pickone acting director and just
have them write it out?
(07:10):
It seems like theadministration, or maybe someone
else, is assigning actingdirectors and then they're just
passing it off to the nextperson and passing it off to the
next person until McKernan isin place.
Why that?
Speaker 3 (07:27):
So it's a couple of things.
One, the timing of theinauguration, with where they
were in the process on vettingcandidates, they obviously were
more squarely focused on gettingtheir cabinet nominees named
and into the process.
(07:49):
The regulator-level nomineescame second right.
But with respect to the CFPB inparticular, it has historically
been a.
You know this is only thesecond time around that we've
had this scenario, but it wasnot easy to fill the first time
(08:10):
around in a Republicanadministration.
The Bureau was was born out ofan all-democratic government at
the time of Dodd-Frank's passage.
It had no support in inCongress among Republicans.
It was not supported by thelast administration to to much
(08:33):
degree and accordingly, you know, from a qualification
standpoint, it's frankly, Ithink it's it's hard to find
interested candidates willing todo the job right.
Um, on top of that, I thinkthat there were some previous uh
folks who had worked at theBureau during the first Trump
administration who politelydeclined to take a second tour
(08:55):
of duty.
There were some others in themix who are longstanding names,
who have been some of the otherregulators and you know, for one
reason or another they didn'tend up landing in that spot and
McKernan's name was always kindof out there as a potential as
well.
I mean, the pool of potentialnames was always small to begin
(09:16):
with, and some of thoseindividuals landed in different
positions across theadministration immediately and
then transition it over.
Is that, as new individualswere confirmed, that simply
means that someone closer to theground can take the reins while
they wait for a permanentdirector?
(09:39):
It would be quite difficult forthe Treasury Secretary, in the
midst of being one of theprimary negotiators on tax
reform with Congress and theinternational markets and
everything that the TreasurySecretary's role entails, to
also be kind of an effectivedual hat director of the CFPB.
(10:03):
In the last administration atthe time, mick Mulvaney, who was
the director of the OMB, wasalso, for a period, the acting
director of the CFPB, so there'ssome precedent there.
But Russ Vogt, the current OMBdirector, who is currently also
the acting director of CFPB he'sthe guy with the red pen and
(10:31):
for uh an administration that islooking to uh cut costs, cut
headcount, um, cut regulation, alot of that uh power and
influence uh lies with rest vote.
So him being an interim pickfor the time being, given what
(10:52):
has unfolded over the last twoweeks in hindsight, makes
perfect sense, right?
If that's the goal, thenthere's no better person for the
job than Russ Vogt.
He knows the federal budgetprocess and appropriations
process like the back of hishand.
There are a few in DC who knowit at a more technical level
than he does, and if there's away to unwind an agency, you
(11:17):
know Russ Vogt's going to knowhow to do it and do it
effectively.
Now I think that there arefissures in the unity uh, you
know, on capitol hill, not tospeak for my um, you know my, my
republican counterparts, but itseems clear that the uh in
conversations with both, uh, youknow democrats and republicans
(11:40):
on the on the hill and they'vesaid this publicly that they
have very little insight intothose decisions that are being
made over at the Bureau rightnow, because it's not being done
in consultation with Congress,nor are any of the other moves
being made by the kind of rovingDOGE team.
(12:00):
This is not unique to CFPB.
You're seeing this kind ofacross the board at all the
agencies at the moment, and soevery few days you get a
breaking news alert that saysthe Doge team has arrived at the
department of XYZ, and that'swhat that means.
Right, they're there to examineand potentially make similar
(12:23):
budget reductions and headcountlayoffs.
Speaker 2 (12:26):
Okay, okay, and thank you for walking us through that
, so you know.
Next question is I mean,obviously, by reducing, you know
, the, the staff by whateverpercent, they let's say 75,
right, you know, the argument isthat, as though they're going
to, you know, push the type ofregulation or enforcement you
(12:49):
know back onto the states.
Right, you could easily seethem doing that, right?
You know some states, likeCalifornia, already have their
own version of the CPB, right,right?
But then you could easily arguethat you know there are some
states that truly bleed red,like Alabama, that have a long
history of respo enforcement.
(13:10):
I mean, so is that really theright play to push it back on
the states, necessarily?
Speaker 3 (13:22):
Yeah, I would almost frame it a different way.
The key for, I think, for ACUMmembers, the key thing to
remember during this period oftime whether it is three months
or three years the law is stillthe law and the regs that are on
the books are still the regsthat are on the books.
Whether or not the currentagency is examining or enforcing
(13:50):
that's another issue.
Regulated entities still needto comply with existing statute,
and so we're getting a lot ofquestions around.
What does this mean forexisting rules or for rules that
were just made final?
It's a good question, but thereis a.
You know, there's an APAprocess for that, and should the
(14:16):
executive branch wish to undothe regs themselves, they've got
to go through that process.
Right, so just you could fireevery single person at the CFPB.
It doesn't make the regs goover.
Fire every single person at theCFPB.
It doesn't make the regs goover.
Now, does it allow for entrypoints for less scrupulous bad
actors to roll the dice?
(14:37):
You bet it does right, but doesit mean that a credit union or
a bank who have been complyingwith these laws for years are
simply going to walk away?
I highly doubt it, because theliability on the back end of
these decisions, whether this isa temporary void in enforcement
(14:59):
and supervision or whether itis prolonged.
I think the liabilitiesoutweigh any near-term benefits
not complying with what we'vebeen complying with all along.
I would also note, the other day, in his semi-annual testimony
to Congress, federal ReserveChair Powell was asked I think
(15:20):
it was by Elizabeth Warren arethere any other?
You know, is the Fed?
Does the Fed have the authorityto, you know, enforce these, uh
consumer protection laws in thebook?
Is there any other prudentialregulator that has these
authorities to enforce um, the,the bureau's responsibilities?
Uh, currently and the answerwas no right, the answer was
(15:41):
there are.
You know, there are statutesthat are unique to the cfpb from
an enforcement perspective andthe bureau is solely responsible
for enforcing those regulations.
So there may be fewer examinerscoming through in the months
ahead.
There may be fewer rulemakings,no doubt, or supervisory
(16:05):
opinions coming out in thecoming months, but that doesn't
mean that um, credit unionsshould take their eyes off of of
regular compliance withexisting consumer protection
laws by any stretch of theimagination okay, great, all
right, just for the sake of time, let's move away from the cfpb.
Speaker 2 (16:21):
as much as I know, we could fill this whole episode
with just the cfpb.
What else is happening with orin dc Gosh?
Where do we start?
Let's do a quick hit, yeah, hud.
Speaker 3 (16:38):
Yeah.
So you've probably seen recentannouncements of significant
staff reductions at HUD.
Again, I would go back to myearlier comment.
This is not unique to HUD.
This is not unique to the CFPB.
Not unique to the CFPB.
(17:02):
There are roughly 200,000, lastchecked 200,000 federal
employees who fall under thedesignation of probationary.
That means someone depending onthe agency, that means someone
who was hired within the lastyear or two years.
Those employees, unfortunately,are the ones with the fewest
protections, right, and so whenyou're looking at wholesale
(17:23):
reduction of workforce, this is,this is, you know, similar to
kind of a corporate playbookwhere the it's the lowest
hanging fruit in terms ofheadcount reduction is is
terminating these probationaryemployees.
We've seen over the last youknow 48 hours, 72 hours,
(17:46):
thousands across Dozens ofagencies that have been
announced.
All the relative point inconnection to all of them is
that they're all probationaryemployees.
(18:09):
Now the HUD piece in particular.
Obviously you know 50 percentof you know degree of importance
that that Republicanadministrations probably pay
compared to Democraticadministrations on the you know
the value of HUD in and ofitself.
There's the regulatorycomponent, where the result in
(18:31):
you know, further reductions andproposed consolidation among
certain regulators may play apotential role there.
And then there's anything thattouches what the administration
deems in its executive orders asrelated to issues around DEI.
So any initiatives, programs,officials, anyone with a title
(18:58):
that is even closely related tothe issue, they run the risk of
having their position eliminatedbased off of what was outlined
in the president's executiveorders early on and shortly
after his inauguration.
So it's impactful, right.
(19:18):
We could see significantreductions, and what that means
is I've said this on previouspodcasts when a regulated entity
is seeking to comply, if theycan't get someone on the phone
from their regulator or fromtheir program manager, that's
going to create problems, right,and it's going to create
(19:40):
uncertainty in the businesscommunity, and we can have
differing opinions about whichregulations are good regulations
and which regulations areburdensome.
But in many cases, no responseis not a good response either.
In many cases, no response isnot a good response either, and
(20:02):
I think that we're.
You know there will be a tailon this where it takes time to
see some of the implicationshere.
But when you reduce a workforceby this size on this big of a
ship this quickly, you're boundto have some collateral damage
and you know the verdict will beyou know will be out there for
a bit, but it's notable and theywill be sizable, so and again,
(20:24):
this might be a stupid question,but you know, going back Two,
three weeks, when you know theadministration came out and said
you know, here, here's apackage, right.
Speaker 2 (20:40):
And I forgot what the package was.
It was like six months, eightmonths, something like that.
Oh yeah, the resignationpackage, right.
I mean, I'm assuming not a lotof people took the
administration up on that offer,or maybe they did.
Speaker 3 (21:06):
It was below their estimate but above, I guess, my
estimate.
Okay, um, I think their goalwas a hundred thousand, uh, and
I think, where you know, by theday of the deadline, which I
think was extended for two days,I think they landed.
They claimed to have landedsomewhere around $75,000.
$75,000, who took this buyout,which is, I think most observers
(21:26):
look at it as legally dubiousas to whether the government can
actually offer a buyout alongthose lines, as to whether the
government can actually offer abuyout along those lines.
There's that, and then thereare the you know roughly 200,000
probationary employees whohypothetically are, you know, in
the crosshairs.
And then there are the folksthat will get, you know, fired
(21:49):
for I say fired for cause, butfired at will I guess is really
the term based off of the natureof their positions.
Kind of going back to myearlier comments around DEI as
an example, but kind ofcompleting that thought is is
this cut?
Speaker 2 (22:11):
50% workforce cut at HUD, the.
The result of that?
Speaker 3 (22:15):
that deficit of 25 000 the deficit of 25 000, you
mean the deficit of 75 000 well,you said they, they fell short
of they.
Got the 75 000 right oh, I seewhat you're saying.
So because they fell short ontheir, on their goalouts?
No, I think it's parallel.
(22:35):
One is not mutually exclusivefrom the other.
Right, these other terminationswere going to happen regardless
.
The buyout offer is, arguablyit's gravy on top of the plans
(22:56):
already underway.
Right, Because the ultimategoal here is federal workforce
reduction and, in turn, savingsfor the federal bottom line.
Right, Again, taking opinionsout of the equation here, just
objectively speaking, if youlook at it in its simplest forms
.
That is the equation here, justobjectively speaking, if you
look at it in its simplest forms.
(23:17):
That is the end goal.
Right, Make government smallerand save the government money
and, in turn, save the taxpayer.
That's the message.
And how they get there.
I think it's.
You know it's fluid.
Right, they have many options.
You know they also Coulddetermine that Three months from
(23:40):
now that this buyout isn'tactually Legal or they don't
actually have the funds to paypeople for six or nine months
without actually working.
There are limits on existingbuyout packages within the civil
service that are much lowerthreshold than what these would
amount to.
Speaker 2 (24:11):
And that's the risk that some of these individuals
are taking about whether thisbuyout will actually be honored
or whether, two months from now,they'll actually just be
terminated.
So, moving on from this, whatelse?
Speaker 3 (24:21):
do?
We got going on in DC, so wehave an active financial
services committee and Senatebanking committee gearing up.
There was a slate of kind ofwhat's called an introductory
hearings during the month ofFebruary where it was really
kind of an entree point intoseveral of their key issues,
(24:44):
right?
So there was a hearing ondigital assets, there was a
hearing on capital capitalformation, or there will be at
the end of the month, there willbe at the end of the month, um,
that there has been increasedchatter around um housing, gse
(25:09):
reform, the, and then the CFPBreform package.
Um, that one's a little moreamorphous at the moment because
in some respects the executivebranch is kind of handling that
for now.
So I could see that kind oftaking a kind of a backseat to
some of these other issues.
And there's the Chairman Hill'seffort around a kind of a
community bank-centric piece ofregulatory relief legislation.
(25:33):
I think that the official termof it is make community banks
great again.
So naturally it poses thequestion hey, well, what about
credit unions?
Right?
I think that the name of thatbill is somewhat of a misnomer
in the fact that it's likely toresult in a piece of legislation
(25:55):
that probably has provisions init that are beneficial to both
credit unions and communitybanks.
There may be some communitybank-specific legislation in the
bill.
There are opportunities forcredit unions to engage as well
and seek credit union-specificprovisions.
(26:15):
But the goal here is reallytargeting relief for community
financial institutions.
But French Hill, as a formerbanker, naturally has naming
rights on that legislation.
So there's potential for thatbill to be marked up sometime in
(26:36):
March.
You know they're still verymuch in the kind of the feedback
stage on that, but it'ssomething that we're keeping an
eye on as an opportunity for.
If I could just say one thingon GSE reform, real quickly,
(27:21):
no-transcript way to make lawwith respect to housing is
through a bipartisan effort andhe seems, you know, ready to
jump in on that.
On GSE reform, though, hecommented that he thinks it's
important, he thinks that theGSE should come out of
conservatorship, and then hereiterated similar sentiments of
(27:44):
Chairman Hill that it reallyneeds to be the administration
to take the lead on that frontand that they will look to the
FHFA and Treasury to initiatethat process and give them
plenty of runway to startexecuting on those plans before
Congress steps in and getsinvolved in them.
Speaker 1 (28:06):
Okay.
Speaker 2 (28:09):
One of my favorite topics.
It's just it's not going to goaway.
Not going to go, maybe in threeyears, maybe in three years
we'll start talking about it.
And then not going to go, maybemaybe in three years, maybe in
three years we'll start talkingabout it and then we'll talk
about it again in four years.
It's just one of those things.
Right, that's right, that'sright.
Well, you know, you know, justlook at the time.
You know I hate to do itbecause I know there's a lot
going on, but we do have to wrapup.
(28:30):
Zach, thank you very much foryour time today.
Truly do appreciate it.
Thanks, peter.
Zach, thank you very much foryour time today.
Truly do appreciate it thanks,peter, always good to chat, of
course as always, we appreciateeverything that our friends over
at Brownstein do for us and ourcommunity.
And to all of you, we know yourtime is valuable.
Thanks for tuning in to thelatest episode of Aquas on White
(28:50):
Podcast.
We hope you enjoyed it.
Until next time.
Be well, my friends.
Speaker 1 (29:00):
Thanks for listening.
We'll see you next time at theAcuma On Point podcast.
If not already, be sure tosubscribe and give us a
five-star rating For more greatepisodes and information.
Be sure to visit us online atacumaorg and to get the latest
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Head over to our LinkedIn page.
The views and opinions expressed in this
podcast do not necessarilyreflect the views or positions
of ACUMA, its board of directors, its management staff or its
members.
The podcast discussionpresented is conversational in
nature and for generalinformation only.
Speaker 2 (00:32):
Hello, welcome to ACMA's On Point Podcast, the
policy series where we focus onpolicy issues impacting the
credit union mortgage industry.
I'm your host, peter Benjamin.
Joining us today is ourresident expert, zach Pfister,
policy Director with Brownstein,zach, my friend, how are you
doing today?
Speaker 3 (00:45):
I'm doing well, Peter .
It's good to be here.
Speaker 2 (00:51):
I have to call this out.
Your voice sounds a littleraspy, almost as though you've
been yelling at a TV screen orsomething.
I don't know what it is, but Idon't know.
It seems like a lot's going onin DC at the moment and I think
we probably take this episodeand thousands of different
(01:15):
directions.
I went into today thinking, ok,well, how do I not make this
about the CFPB, the CFPB, theCFPB, et cetera?
But there's just too much notto discuss, so I'm going to let
you just jump right in anddiscuss whatever you so choose,
but I imagine CFPB is going tobe on the docket.
Speaker 3 (01:38):
So fire away whenever you so choose, all right.
Speaker 2 (01:43):
After you sir.
Speaker 3 (01:58):
All right After you, sir uh, followed by an acting
director.
Vote uh, russ, vote uh.
Who's the current uh recentlyconfirmed director of the omb?
Um, he's in that position uhfor the time being.
It's possible.
We're hearing rumors that theremay be another acting director?
(02:20):
Uh in the coming weeks.
Some moves being made in theinterim while Jonathan McKernan,
the nominee for the permanentposition, makes his way through
the confirmation process.
Mckernan comes from the FGIC.
He has a reputation of being aserious regulator.
(02:42):
He was previously on the Hillfor the Senate Banking Committee
with then-Chairman Pat Toomey.
Like I said, he's known as aserious regulator.
He was a senior advisor at FHFA.
It was an interesting pick giventhe dynamics around what the
Department of GovernmentEfficiency, the Department of
(03:02):
Government Efficiency, the DOGEteam, has been doing over the
CFPB with respect to proposedcuts and layoffs, terminations,
freezes of all actions,enforcement, supervisory or
otherwise.
That said, it does give anindication that the CFPB will
continue in some fashion.
(03:23):
It's just not clear at thismoment what that is.
If you look at some of thedevelopments over the last seven
days, there have been over athousand terminations at the
CFPB across various positions,you know, in all kind of
(03:45):
departments of the Bureau.
The freeze at the Bureauremains in effect kind of
indefinitely for the time being,pending either further
announcements from the actingdirector or results from various
pieces of litigation underway.
The litigation that's beenfiled against the CFPB at the
(04:07):
moment is more geared towardsthe employment component of
what's going on there.
But it's all to say thateverything is pointing to a much
smaller bureau, a much lessactive Bureau, one that is
certainly going to take adifferent approach than, you
(04:29):
know, the previous four years.
One would argue that there mayeven be attempts underway to
simply let the Bureau kind ofattrition out of existence.
I I absent an act of Congress.
That's not entirely possible,unless Congress passes a bill
(04:51):
that would repeal Dodd-Frank orabolish the CFPB.
It would stop short of that.
But I would note one of themost telling examples of the
direction in which they aregoing, at least in the interim,
is that the, the acting director, did not request the advance,
(05:15):
the monetary advance from theFed that funds the bureau.
So the CFPB is not funded byappropriations, it is funded via
an advance from the FederalReserve.
Those advances happen on aquarterly basis.
I think the CFPB's budget lastyear was somewhere around $740
(05:36):
million.
The first action that the newacting director took upon taking
up the role was sending aletter to the Federal Reserve
saying that they will not berequesting their quarterly
advance.
So this is kind of theinformation we have at the
moment, and it's very fluid.
But it does seem like moreterminations are forthcoming.
(06:01):
This is looking a lot morereminiscent to what happened
over at USAID, where they hadstaff of 10,000 and now they
have a staff of 250.
Or by the end of the day,that's the end goal there.
The CFPB is heading in thattrajectory, barring any further
(06:23):
court decisions.
But we shall see.
Speaker 2 (06:27):
Ask me again in two weeks, and I think we'll have a
very clear picture so I meanobviously a lot of questions, um
, you know, based off alleverything you just said.
So I'm gonna start with, youknow, the first question that
that I I have to ask, since it'sgoing back to one of the first
things you said and this.
I'm going to preface this bysaying maybe this is just I, I'm
(06:50):
sorry for the pause.
I'm trying to frame it up inthe most intelligent way I
possibly can, but maybe there'snot.
Why so many acting directors,one after another?
Is there a reason for it?
Or is it just why not just pickone acting director and just
have them write it out?
(07:10):
It seems like theadministration, or maybe someone
else, is assigning actingdirectors and then they're just
passing it off to the nextperson and passing it off to the
next person until McKernan isin place.
Why that?
Speaker 3 (07:27):
So it's a couple of things.
One, the timing of theinauguration, with where they
were in the process on vettingcandidates, they obviously were
more squarely focused on gettingtheir cabinet nominees named
and into the process.
(07:49):
The regulator-level nomineescame second right.
But with respect to the CFPB inparticular, it has historically
been a.
You know this is only thesecond time around that we've
had this scenario, but it wasnot easy to fill the first time
(08:10):
around in a Republicanadministration.
The Bureau was was born out ofan all-democratic government at
the time of Dodd-Frank's passage.
It had no support in inCongress among Republicans.
It was not supported by thelast administration to to much
(08:33):
degree and accordingly, you know, from a qualification
standpoint, it's frankly, Ithink it's it's hard to find
interested candidates willing todo the job right.
Um, on top of that, I thinkthat there were some previous uh
folks who had worked at theBureau during the first Trump
administration who politelydeclined to take a second tour
(08:55):
of duty.
There were some others in themix who are longstanding names,
who have been some of the otherregulators and you know, for one
reason or another they didn'tend up landing in that spot and
McKernan's name was always kindof out there as a potential as
well.
I mean, the pool of potentialnames was always small to begin
(09:16):
with, and some of thoseindividuals landed in different
positions across theadministration immediately and
then transition it over.
Is that, as new individualswere confirmed, that simply
means that someone closer to theground can take the reins while
they wait for a permanentdirector?
(09:39):
It would be quite difficult forthe Treasury Secretary, in the
midst of being one of theprimary negotiators on tax
reform with Congress and theinternational markets and
everything that the TreasurySecretary's role entails, to
also be kind of an effectivedual hat director of the CFPB.
(10:03):
In the last administration atthe time, mick Mulvaney, who was
the director of the OMB, wasalso, for a period, the acting
director of the CFPB, so there'ssome precedent there.
But Russ Vogt, the current OMBdirector, who is currently also
the acting director of CFPB he'sthe guy with the red pen and
(10:31):
for uh an administration that islooking to uh cut costs, cut
headcount, um, cut regulation, alot of that uh power and
influence uh lies with rest vote.
So him being an interim pickfor the time being, given what
(10:52):
has unfolded over the last twoweeks in hindsight, makes
perfect sense, right?
If that's the goal, thenthere's no better person for the
job than Russ Vogt.
He knows the federal budgetprocess and appropriations
process like the back of hishand.
There are a few in DC who knowit at a more technical level
than he does, and if there's away to unwind an agency, you
(11:17):
know Russ Vogt's going to knowhow to do it and do it
effectively.
Now I think that there arefissures in the unity uh, you
know, on capitol hill, not tospeak for my um, you know my, my
republican counterparts, but itseems clear that the uh in
conversations with both, uh, youknow democrats and republicans
(11:40):
on the on the hill and they'vesaid this publicly that they
have very little insight intothose decisions that are being
made over at the Bureau rightnow, because it's not being done
in consultation with Congress,nor are any of the other moves
being made by the kind of rovingDOGE team.
(12:00):
This is not unique to CFPB.
You're seeing this kind ofacross the board at all the
agencies at the moment, and soevery few days you get a
breaking news alert that saysthe Doge team has arrived at the
department of XYZ, and that'swhat that means.
Right, they're there to examineand potentially make similar
(12:23):
budget reductions and headcountlayoffs.
Speaker 2 (12:26):
Okay, okay, and thank you for walking us through that
, so you know.
Next question is I mean,obviously, by reducing, you know
, the, the staff by whateverpercent, they let's say 75,
right, you know, the argument isthat, as though they're going
to, you know, push the type ofregulation or enforcement you
(12:49):
know back onto the states.
Right, you could easily seethem doing that, right?
You know some states, likeCalifornia, already have their
own version of the CPB, right,right?
But then you could easily arguethat you know there are some
states that truly bleed red,like Alabama, that have a long
history of respo enforcement.
(13:10):
I mean, so is that really theright play to push it back on
the states, necessarily?
Speaker 3 (13:22):
Yeah, I would almost frame it a different way.
The key for, I think, for ACUMmembers, the key thing to
remember during this period oftime whether it is three months
or three years the law is stillthe law and the regs that are on
the books are still the regsthat are on the books.
Whether or not the currentagency is examining or enforcing
(13:50):
that's another issue.
Regulated entities still needto comply with existing statute,
and so we're getting a lot ofquestions around.
What does this mean forexisting rules or for rules that
were just made final?
It's a good question, but thereis a.
You know, there's an APAprocess for that, and should the
(14:16):
executive branch wish to undothe regs themselves, they've got
to go through that process.
Right, so just you could fireevery single person at the CFPB.
It doesn't make the regs goover.
Fire every single person at theCFPB.
It doesn't make the regs goover.
Now, does it allow for entrypoints for less scrupulous bad
actors to roll the dice?
(14:37):
You bet it does right, but doesit mean that a credit union or
a bank who have been complyingwith these laws for years are
simply going to walk away?
I highly doubt it, because theliability on the back end of
these decisions, whether this isa temporary void in enforcement
(14:59):
and supervision or whether itis prolonged.
I think the liabilitiesoutweigh any near-term benefits
not complying with what we'vebeen complying with all along.
I would also note, the other day, in his semi-annual testimony
to Congress, federal ReserveChair Powell was asked I think
(15:20):
it was by Elizabeth Warren arethere any other?
You know, is the Fed?
Does the Fed have the authorityto, you know, enforce these, uh
consumer protection laws in thebook?
Is there any other prudentialregulator that has these
authorities to enforce um, the,the bureau's responsibilities?
Uh, currently and the answerwas no right, the answer was
(15:41):
there are.
You know, there are statutesthat are unique to the cfpb from
an enforcement perspective andthe bureau is solely responsible
for enforcing those regulations.
So there may be fewer examinerscoming through in the months
ahead.
There may be fewer rulemakings,no doubt, or supervisory
(16:05):
opinions coming out in thecoming months, but that doesn't
mean that um, credit unionsshould take their eyes off of of
regular compliance withexisting consumer protection
laws by any stretch of theimagination okay, great, all
right, just for the sake of time, let's move away from the cfpb.
Speaker 2 (16:21):
as much as I know, we could fill this whole episode
with just the cfpb.
What else is happening with orin dc Gosh?
Where do we start?
Let's do a quick hit, yeah, hud.
Speaker 3 (16:38):
Yeah.
So you've probably seen recentannouncements of significant
staff reductions at HUD.
Again, I would go back to myearlier comment.
This is not unique to HUD.
This is not unique to the CFPB.
Not unique to the CFPB.
(17:02):
There are roughly 200,000, lastchecked 200,000 federal
employees who fall under thedesignation of probationary.
That means someone depending onthe agency, that means someone
who was hired within the lastyear or two years.
Those employees, unfortunately,are the ones with the fewest
protections, right, and so whenyou're looking at wholesale
(17:23):
reduction of workforce, this is,this is, you know, similar to
kind of a corporate playbookwhere the it's the lowest
hanging fruit in terms ofheadcount reduction is is
terminating these probationaryemployees.
We've seen over the last youknow 48 hours, 72 hours,
(17:46):
thousands across Dozens ofagencies that have been
announced.
All the relative point inconnection to all of them is
that they're all probationaryemployees.
(18:09):
Now the HUD piece in particular.
Obviously you know 50 percentof you know degree of importance
that that Republicanadministrations probably pay
compared to Democraticadministrations on the you know
the value of HUD in and ofitself.
There's the regulatorycomponent, where the result in
(18:31):
you know, further reductions andproposed consolidation among
certain regulators may play apotential role there.
And then there's anything thattouches what the administration
deems in its executive orders asrelated to issues around DEI.
So any initiatives, programs,officials, anyone with a title
(18:58):
that is even closely related tothe issue, they run the risk of
having their position eliminatedbased off of what was outlined
in the president's executiveorders early on and shortly
after his inauguration.
So it's impactful, right.
(19:18):
We could see significantreductions, and what that means
is I've said this on previouspodcasts when a regulated entity
is seeking to comply, if theycan't get someone on the phone
from their regulator or fromtheir program manager, that's
going to create problems, right,and it's going to create
(19:40):
uncertainty in the businesscommunity, and we can have
differing opinions about whichregulations are good regulations
and which regulations areburdensome.
But in many cases, no responseis not a good response either.
In many cases, no response isnot a good response either, and
(20:02):
I think that we're.
You know there will be a tailon this where it takes time to
see some of the implicationshere.
But when you reduce a workforceby this size on this big of a
ship this quickly, you're boundto have some collateral damage
and you know the verdict will beyou know will be out there for
a bit, but it's notable and theywill be sizable, so and again,
(20:24):
this might be a stupid question,but you know, going back Two,
three weeks, when you know theadministration came out and said
you know, here, here's apackage, right.
Speaker 2 (20:40):
And I forgot what the package was.
It was like six months, eightmonths, something like that.
Oh yeah, the resignationpackage, right.
I mean, I'm assuming not a lotof people took the
administration up on that offer,or maybe they did.
Speaker 3 (21:06):
It was below their estimate but above, I guess, my
estimate.
Okay, um, I think their goalwas a hundred thousand, uh, and
I think, where you know, by theday of the deadline, which I
think was extended for two days,I think they landed.
They claimed to have landedsomewhere around $75,000.
$75,000, who took this buyout,which is, I think most observers
(21:26):
look at it as legally dubiousas to whether the government can
actually offer a buyout alongthose lines, as to whether the
government can actually offer abuyout along those lines.
There's that, and then thereare the you know roughly 200,000
probationary employees whohypothetically are, you know, in
the crosshairs.
And then there are the folksthat will get, you know, fired
(21:49):
for I say fired for cause, butfired at will I guess is really
the term based off of the natureof their positions.
Kind of going back to myearlier comments around DEI as
an example, but kind ofcompleting that thought is is
this cut?
Speaker 2 (22:11):
50% workforce cut at HUD, the.
The result of that?
Speaker 3 (22:15):
that deficit of 25 000 the deficit of 25 000, you
mean the deficit of 75 000 well,you said they, they fell short
of they.
Got the 75 000 right oh, I seewhat you're saying.
So because they fell short ontheir, on their goalouts?
No, I think it's parallel.
(22:35):
One is not mutually exclusivefrom the other.
Right, these other terminationswere going to happen regardless
.
The buyout offer is, arguablyit's gravy on top of the plans
(22:56):
already underway.
Right, Because the ultimategoal here is federal workforce
reduction and, in turn, savingsfor the federal bottom line.
Right, Again, taking opinionsout of the equation here, just
objectively speaking, if youlook at it in its simplest forms
.
That is the equation here, justobjectively speaking, if you
look at it in its simplest forms.
(23:17):
That is the end goal.
Right, Make government smallerand save the government money
and, in turn, save the taxpayer.
That's the message.
And how they get there.
I think it's.
You know it's fluid.
Right, they have many options.
You know they also Coulddetermine that Three months from
(23:40):
now that this buyout isn'tactually Legal or they don't
actually have the funds to paypeople for six or nine months
without actually working.
There are limits on existingbuyout packages within the civil
service that are much lowerthreshold than what these would
amount to.
Speaker 2 (24:11):
And that's the risk that some of these individuals
are taking about whether thisbuyout will actually be honored
or whether, two months from now,they'll actually just be
terminated.
So, moving on from this, whatelse?
Speaker 3 (24:21):
do?
We got going on in DC, so wehave an active financial
services committee and Senatebanking committee gearing up.
There was a slate of kind ofwhat's called an introductory
hearings during the month ofFebruary where it was really
kind of an entree point intoseveral of their key issues,
(24:44):
right?
So there was a hearing ondigital assets, there was a
hearing on capital capitalformation, or there will be at
the end of the month, there willbe at the end of the month, um,
that there has been increasedchatter around um housing, gse
(25:09):
reform, the, and then the CFPBreform package.
Um, that one's a little moreamorphous at the moment because
in some respects the executivebranch is kind of handling that
for now.
So I could see that kind oftaking a kind of a backseat to
some of these other issues.
And there's the Chairman Hill'seffort around a kind of a
community bank-centric piece ofregulatory relief legislation.
(25:33):
I think that the official termof it is make community banks
great again.
So naturally it poses thequestion hey, well, what about
credit unions?
Right?
I think that the name of thatbill is somewhat of a misnomer
in the fact that it's likely toresult in a piece of legislation
(25:55):
that probably has provisions init that are beneficial to both
credit unions and communitybanks.
There may be some communitybank-specific legislation in the
bill.
There are opportunities forcredit unions to engage as well
and seek credit union-specificprovisions.
(26:15):
But the goal here is reallytargeting relief for community
financial institutions.
But French Hill, as a formerbanker, naturally has naming
rights on that legislation.
So there's potential for thatbill to be marked up sometime in
(26:36):
March.
You know they're still verymuch in the kind of the feedback
stage on that, but it'ssomething that we're keeping an
eye on as an opportunity for.
If I could just say one thingon GSE reform, real quickly,
(27:21):
no-transcript way to make lawwith respect to housing is
through a bipartisan effort andhe seems, you know, ready to
jump in on that.
On GSE reform, though, hecommented that he thinks it's
important, he thinks that theGSE should come out of
conservatorship, and then hereiterated similar sentiments of
(27:44):
Chairman Hill that it reallyneeds to be the administration
to take the lead on that frontand that they will look to the
FHFA and Treasury to initiatethat process and give them
plenty of runway to startexecuting on those plans before
Congress steps in and getsinvolved in them.
Speaker 1 (28:06):
Okay.
Speaker 2 (28:09):
One of my favorite topics.
It's just it's not going to goaway.
Not going to go, maybe in threeyears, maybe in three years
we'll start talking about it.
And then not going to go, maybemaybe in three years, maybe in
three years we'll start talkingabout it and then we'll talk
about it again in four years.
It's just one of those things.
Right, that's right, that'sright.
Well, you know, you know, justlook at the time.
You know I hate to do itbecause I know there's a lot
going on, but we do have to wrapup.
(28:30):
Zach, thank you very much foryour time today.
Truly do appreciate it.
Thanks, peter.
Zach, thank you very much foryour time today.
Truly do appreciate it thanks,peter, always good to chat, of
course as always, we appreciateeverything that our friends over
at Brownstein do for us and ourcommunity.
And to all of you, we know yourtime is valuable.
Thanks for tuning in to thelatest episode of Aquas on White
(28:50):
Podcast.
We hope you enjoyed it.
Until next time.
Be well, my friends.
Speaker 1 (29:00):
Thanks for listening.
We'll see you next time at theAcuma On Point podcast.
If not already, be sure tosubscribe and give us a
five-star rating For more greatepisodes and information.
Be sure to visit us online atacumaorg and to get the latest
updates.
Head over to our LinkedIn page.
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