US Senate Democrats Warn CFPB Shutdown Could Disrupt Interest Rates

Senate Democrats are sounding alarms over the potential shutdown of the Consumer Financial Protection Bureau, or CFPB, which they warn could disrupt prime interest rates. In November, the Trump administration declared in a court filing that the CFPB's funding is unlawful, asserting that the agency cannot legally request funds from the Federal Reserve under the Dodd-Frank Act.

Currently under the leadership of Director Russell Vought, the CFPB has suspended much of its operations and is engaged in a legal effort to reduce its workforce by 90 percent. According to the senators, if the CFPB ceases to publish standardized Annual Percentage Rate tables, or APOR, lenders could become hesitant to extend loans to lower-income borrowers due to the increased risk of litigation if they exceed the APOR thresholds.

This could lead lenders to raise interest rates on loans to mitigate that risk, ultimately skewing the cost of homeownership and restricting credit access for borrowers. The letter, signed by Senators Elizabeth Warren of Massachusetts, Raphael Warnock of Georgia, Ruben Gallego of Arizona, and Andy Kim of New Jersey, raises significant concerns about the ramifications of a CFPB shutdown.

A spokesperson for the CFPB informed the trade publication Capitol Account that the bureau plans to outline an alternative method for calculating APOR, allowing lenders to determine it independently. However, the senators criticized this proposal, arguing it may lack clear legal standing.

They referenced a 2023 amicus brief from the Mortgage Bankers Association, the National Association of Home Builders, and the National Association of Realtors, which warned of potentially catastrophic consequences if the CFPB were to be shuttered.

The lawmakers emphasized that nearly all financial transactions for residential real estate in the U.S. depend on compliance with CFPB regulations, which provide essential rights and protections for consumers.

They have requested a response from Russell Vought addressing their concerns by December 16. The implications of this situation could be significant, as the stability of prime interest rates is vital for both consumers and financial institutions alike.