Consumer Financial Protection Bureau Gridlock Leaves Millions in Consumer Relief Hanging in the Balance
A freeze on activity at the Consumer Financial Protection Bureau (CFPB), instigated by the Trump administration, has placed over $100 million earmarked for borrowers allegedly harmed by student loan servicer Navient in limbo. The agency’s work stoppage is causing considerable worry among consumer advocacy groups and former agency officials who fear that significant payouts from other financial service companies to harmed consumers may also be jeopardized. These companies, including Cash App’s parent company Block, TD Bank, and the lending arm of Honda, were ordered to compensate consumers for alleged misconduct. However, the CFPB’s current inactivity means these payments are unable to proceed.
Navient reached an agreement with the CFPB in September after a seven-year legal dispute, promising to pay $100 million to the agency. The agreement stipulated that the CFPB would then distribute checks to student loan borrowers who, according to the agency, had their loan costs illegally inflated by Navient for years. While Navient disputed the CFPB’s findings, the settlement was a major victory for consumer advocates.
However, the Trump administration’s decision to halt operations at the agency appears to have derailed the compensation process. The Student Borrower Protection Center, an advocacy organization that litigates on behalf of student borrowers and advocates for consumer-friendly policies in Washington, has expressed concern about the delayed payments. Mike Pierce, the head of the Center and a former CFPB official who previously worked on the Navient case, stated that the agency was under court order to distribute the funds and that restitution was not currently being distributed.
Although Reuters was unable to determine a specific deadline for payment approval or distribution, the delay is particularly troubling to borrowers who were expecting to receive compensation in 2025. The absence of Navient’s case from the CFPB’s website list of active compensation payments further underscores the concerns about the payout’s future. Additionally, the agency’s website remains dysfunctional, and it appears to have not been updated since the change in administration.
The current situation raises questions about the fate of other consumer redress payments from financial institutions. The CFPB’s mandated work stoppage has put the approval of these payments on hold, casting a shadow of uncertainty over the future compensation of potentially thousands of consumers harmed by alleged corporate misconduct.
Trump has been a vocal critic of the CFPB, accusing it of politicized enforcement and advocating for its elimination. The agency’s acting director, Russ Vought, recently ordered a halt to all work with limited exceptions. While government lawyers and agency officials have asserted in court documents that the CFPB will continue to exist in a streamlined form, the current freeze on activity raises doubts about its ability to fulfill its consumer protection mandate.
The CFPB’s operating funds are derived from the Federal Reserve, but the payments it delivers to consumers who have been deemed to be harmed by corporate misconduct originate from the sums collected from the companies it oversees. Since its establishment in 2013, the agency has reported returning $21 billion to the public through compensation, debt cancellation, loan principal reduction, and other means.
The agency typically disburses payments in a number of ways, including "bureau-administered redress," in which the agency, rather than the company itself, disburses the compensation. The Navient funds would fall into this category.
In order to determine how the $100 million Navient payout should be distributed, the CFPB requires analysis from an external firm, Bates White, which the agency hired to provide expert testimony for the Navient lawsuit. However, data released by Elon Musk’s Department of Government Efficiency showed that the CFPB had canceled the Bates White contract, further complicating the process.
Agency leadership has reportedly not given the go-ahead for officials to resume reviewing and approving companies’ plans to distribute consumer redress payments directly. As a result, these payment plans are unlikely to proceed. Since September, when the CFPB reached the Navient settlement, the agency has ordered eight other companies to make consumer redress payments totaling between $202.6 million and $247.6 million.
The deadlines have not yet passed for three of those companies – Block, American Honda Finance Corporation, and the money transfer business Wise, which were ordered to pay $85.8 million combined – to submit redress payment plans. This raises further concerns about whether the CFPB will be able to approve these plans.
David Silberman, a visiting lecturer in consumer finance law and former senior CFPB official, stated that it’s unusual for the "victor" to stop moving forward after a settlement is reached. He added that the money doesn’t belong to the bureau. The agency is meant to pass these funds on to the consumers who have been harmed by unlawful practices.
The current uncertainty surrounding the CFPB’s operations leaves millions of consumers in limbo, wondering whether they will receive the compensation they are entitled to. The future of the agency and its ability to protect consumers from financial misconduct remain uncertain.
