Ted Cruz, Defund CFPB Act - Cut All Federal Funding to CFPB

Sen. Ted Cruz, R-TX, has reignited efforts to defund the Consumer Financial Protection Bureau (CFPB), introducing the Defund the CFPB Act on January 29, 2025. 

The bill seeks to reduce Federal Reserve transfers to the agency to $0, effectively eliminating its funding. 

This marks Cruz’s third major attempt since 2015 to dismantle the CFPB, which was created under the 2010 Dodd-Frank Act to regulate consumer financial products and combat predatory practices.

Key Details of the Proposal:

• Funding Mechanism: The CFPB currently receives its budget from the Federal Reserve, bypassing congressional appropriations. Cruz’s bill would halt these transfers, arguing the agency is an “unelected, unaccountable bureaucratic arm” of the Obama era.

• Legislative Strategy: Republicans plan to advance the bill through budget reconciliation, which requires only a simple majority in the Senate (53-47 Republican advantage). This bypasses the typical 60-vote threshold but hinges on approval from the Senate parliamentarian.

• Political Support: The bill is co-sponsored by Sens. John Barrasso (R-WY), Rick Scott (R-FL), Steve Daines (R-MT), and others. A companion House bill was introduced by Rep. Keith Self (R-TX).

Context and Motivations:

• Republican Criticisms: Cruz and allies claim the CFPB’s regulations are “burdensome” for businesses and banks. The Independent Community Bankers of America echoed concerns about destabilizing rules, while Elon Musk publicly called for the agency’s elimination in late 2024.

• Supreme Court Precedent: A 2024 ruling upheld the CFPB’s funding structure, prompting Cruz to pivot to legislative action.

• Trump Administration’s Role: The White House is reportedly considering additional oversight via the Treasury or Office of Management and Budget, potentially restructuring the CFPB’s operations post-Chopra.

Opposition and Implications:

• Consumer Advocacy Backlash: Jesse Van Tol of the National Community Reinvestment Coalition warned that defunding the CFPB would “invite the worst actors” to exploit consumers. The agency has recovered $20 billion through enforcement actions since its inception.

• Regulatory Uncertainty: If passed, the bill could disrupt oversight of mortgages, credit cards, and lending practices. The CFPB’s recent rules targeting overdraft fees and credit reporting practices might face immediate challenges.

This effort reflects a broader Republican strategy to roll back Obama-era financial regulations, amplified by unified GOP control of Congress and the White House. While the outcome remains uncertain, the move underscores ongoing debates over financial oversight and agency accountability.

Key Industry Impacts for Non-Bank Lenders

The CFPB’s current oversight of non-bank financial institutions—including alternative lenders—has been a focal point of its enforcement. These entities, which operate outside traditional banking regulations, have faced increased scrutiny under rules targeting unfair practices in mortgages, payday lending, and fintech services.

Defunding the CFPB could:

• Reduce compliance burdens for non-bank lenders who argue that CFPB rules stifle innovation and limit credit access to underserved markets.

• Create regulatory gaps, as non-banks currently account for ~60% of U.S. mortgage originations and rely on CFPB supervision to maintain market credibility.

• Shift enforcement to states, where oversight could become fragmented. For example, California’s DFPI and New York’s DFS have already expanded consumer protection efforts in anticipation of federal rollbacks.

State-Level Regulatory Implications

If the CFPB’s funding is eliminated, states may step in as primary regulators:

• Preemption conflicts: The CFPB’s 2023 determination affirming state commercial lending disclosure laws (e.g., CA, NY, UT) could face challenges without federal coordination.

• Resource strain: States like Texas and Florida lack the infrastructure to replicate CFPB’s $20 billion enforcement capacity, potentially allowing predatory practices to resurge.

• Private enforcement surge: Consumer advocates warn of increased reliance on litigation under state UDAP laws, which vary widely in scope and penalties.

Alternative lenders often serve high-risk borrowers rejected by traditional banks. While Cruz’s bill could reduce compliance costs, it risks:

• Market destabilization: Non-bank lenders depend on CFPB’s standardized rules (e.g., Section 1071 small business data collection) to operate across state lines.

• Loss of federal backstop: State-level oversight could create a patchwork of regulations, complicating compliance for platforms operating nationally.

• Reputational risks: Reduced oversight might invite predatory actors, undermining trust in alternative lending markets.

This legislative initiative highlights a significant clash between deregulation and consumer protection, with a notable impact on non-bank lenders and state regulatory systems. Although the bill's outcome is still undecided, its potential effects on market dynamics and enforcement priorities demand careful attention.

1-Minute Video: Secretary of State API makes Compliance Simple

Don't let compliance requirements slow you down - automate KYC/AML checks with Secretary of State API.

As KYC and AML regulations become increasingly strict, lenders must be absolutely certain about their borrowers' identities. Non-compliance can lead to hefty fines and severe reputational damage – consequences no lender wants to face.

Arm yourself with the most accurate, up-to-date data and leave your competition in the dust.

Book FREE demo call today!

Headlines You Don’t Want to Miss

CFPB Fines Fintech Wise $2.5M for Consumer Harm

The Consumer Financial Protection Bureau (CFPB) fined international remittance company Wise $2.5 million for illegal practices related to fee transparency and consumer disclosures. The penalty includes $450,000 in customer reimbursements and a $2.025 million civil fine for violations of the Electronic Fund Transfer Act, Prepaid Rule, and Remittance Transfer Rule.

Vista Equity Partners Invests in Fair Lending Compliance Platform RiskExec

Vista Equity Partners has made a strategic growth investment in RiskExec, Inc., establishing it as a standalone company from its previous parent Asurity Technologies. The investment was announced on January 30, 2025, through Vista's Endeavor Fund, which targets high-growth enterprise software companies with at least $10 million in recurring revenue.

Sound Point Auto Lender GLS Weighs $1 Billion Plus Sale

Global Lending Services (GLS), a prominent auto finance company, is currently exploring a potential sale that could exceed $1 billion in value. Sound Point Capital Management, which holds the majority stake in GLS, has enlisted Goldman Sachs Group Inc. to gauge interest from potential buyers.

Fintex chief warns direct lending is in danger of becoming “oversubscribed”

Fintex Capital's chief executive issued a warning on January 31, 2025, about the direct lending market nearing oversubscription due to heightened competition. This caution highlights growing concerns about market saturation and its potential consequences for lenders and investors.