MBA Premier Member Editorial–A Diminished CFPB Part Two: How Will Courts and the Industry Respond

Jonas Hoerler is Chief Regulatory Counsel with RegCheck, Asurity’s loan compliance solution. Diane Jenkins is an attorney with Asurity and a partner at Sandler Law Group.

For mortgage lenders and servicers as well as other players in the consumer financial services industry, it may truly be the end of an era. Since its inception, the Consumer Financial Protection Bureau has been a guiding force to the financial services industry. With the current administration scaling back and refocusing the CFPB, the financial services industry is left with uncertainty as to what the future holds.

Part One of this series discussed the role of states in filling the gap left by the current administration pulling back the role of the CFPB. Part Two will discuss how the courts and the mortgage industry itself may respond to the changes at the CFPB.

Private Right of Action

The Fair Housing Act (FHA), Truth in Lending Act (TILA), the Home Ownership and Equity Protection Act (HOEPA), the Equal Credit Opportunity Act (ECOA), and the Real Estate Settlement Procedures Act (RESPA), among others, provide borrowers with a private right of action against mortgage lenders which can be costly to defend and result in significant damages. Borrowers and plaintiffs’ attorneys may see the reduction in CFPB enforcement activity as an opportunity to pursue litigation based on the private right of action provided to borrowers in these federal consumer protection laws.

The CFPB’s Consumer Complaint Database reports that 20,827 mortgage related complaints were filed between April 8, 2024 and April 8, 2025.Borrowers who feel their complaints are largely going unanswered by the CFPB may, seeing no other option, turn to lawsuits to find relief.

Moreover, the courts may consider the impact of the diminished role of the CFPB when these cases land in their courtrooms. In a recent lawsuit by a group of Mississippi banks against the CFPB over the CFPB’s new rule limiting overdraft fees, the judge overseeing the case allowed two non-profit consumer groups to intervene largely because the CFPB appeared poised to abandon its defense of the overdraft rule. The non-profit groups support the overdraft rule, which prohibits larger banks and credit unions from charging overdraft fees in excess of $5. In granting the request for intervention, the court stated:

Had the administration and leadership of the CFPB not changed in January, the CFPB would have mounted a vigorous defense of the overdraft rule in this litigation. Its first brief opposing injunctive relief suggests as much. But the situation changed. The CFPB might now seek to abandon the overdraft rule. Indeed, its ‘agreed motion to stay’ suggests as much. And the CFPB’s failure to take a position on intervention is telling; the agency could have used that opportunity to communicate the vigor of its anticipated defense, but elected not to. The adequacy of the CFPB’s representation is therefore legitimately in question. It may fall to the movants to defend the overdraft rule.

The overdraft rule appears to be dead in the water as both the House and the Senate recently approved resolutions to overturn the overdraft rule. However, the court’s willingness to allow intervenors to step in and defend a CFPB rule in the absence of a defense by the CFPB provides insight as to how the courts may be impacted by the lack of enforcement by the CFPB.

Industry response

The aggressive lending that led to the 2008 financial crisis would give credence to the argument that the industry needs to be subject to government oversight. However, mortgage lending is a far cry from what it was before the 2008 financial crisis when a borrower’s ability to repay the loan was less scrutinized and predatory lending practices were more common.

Regulation of the financial services industry prior to the crisis largely focused on bank soundness rather than consumer protection. Presumably, even lenders would agree that some guardrails were needed in order to protect borrowers from bad actors and restore consumer faith in the financial service industry as a whole. However, some would also agree that the pendulum subsequently swung too far in the opposite direction, burdening the industry with costly and cumbersome compliance requirements.

Even with a perceived void in regulatory oversight, it appears unlikely that the mortgage industry will revert to the type of lending practices that led to the 2008 crisis. Most lenders have invested substantial time and effort into improving compliance and risk management practices. Additionally, the industry has worked hard to rebuild trust in the financial services sector and has incentive to preserve that trust in order to protect their bottom line. If the industry can maintain sound lending practices and consumer protections, even in a period of less aggressive federal supervision, it will likely be in a better position to manage the current downturn in mortgage lending.  

Since the financial crisis, the industry has demonstrated its ability to respond and adapt to changing regulatory climates. Following the implementation of the Dodd-Frank Act, mortgage companies spent significant time and resources to ensure compliance with complicated laws and regulations governing consumer financial services. Even more impressive was the speed at which the mortgage industry adopted numerous new programs to aid borrowers dealing with financial hardships due to the COVID-19 pandemic. As the regulatory environment evolves, financial service companies must continue to be prepared to adapt to changing requirements.

The downturn in the market has certainly driven lenders to think creatively about how to attract borrowers. However, social media and consumer protection groups play a large role in molding market sentiment and can significantly impact a company’s reputation if they are perceived as taking advantage of consumers. While this doesn’t eliminate all bad actors, the mortgage industry certainly has significant reason to tread lightly when pulling back on processes and procedures which benefit consumers in order to retain consumer faith in the industry overall.

Conclusion

While it is impossible to predict the role the CFPB will play in consumer financial protection going forward and how the void will be filled, there is no doubt that the regulatory landscape for financial service providers will change significantly in the coming year. The industry has shown its ability to adapt to ever-evolving compliance requirements and will need to be prepared to accommodate the significant changes which are sure to come.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)