For years, big banks and financial institutions have fought against the Consumer Financial Protection Bureau (CFPB), claiming it imposed unfair regulations. But now, with the agency on the verge of collapse, banks are realizing that getting rid of it might actually hurt their business.

What Is Happening to the CFPB?

The CFPB, the main U.S. consumer finance watchdog, is in crisis. Under the Trump administration, the agency has faced massive layoffs, budget cuts, and even an attempt to shut down its headquarters. Acting Director Russell Vought has led the charge, slashing 800 supervision and enforcement jobs—moves that have now been temporarily blocked by a federal judge.

Why Banks Are Now Worried

At first, banks welcomed the CFPB’s decline. After all, they have spent years fighting regulations on overdraft fees, credit card penalties, and consumer protections. But now, they’re facing a new problem: less oversight on non-bank competitors.

The CFPB is the only federal agency that regulates non-bank financial companies like:

• PayPal
• Cash App
• Chime
• Stripe

Without the CFPB, these fintech firms would face little to no federal regulation, giving them an unfair advantage over traditional banks, which are still heavily monitored by the Federal Reserve, FDIC, and other agencies.

Banks Are Changing Their Tune

This realization has led to a major shift. Big banks like JPMorgan Chase, which once sued the CFPB, are now rethinking their stance.

Even the Consumer Bankers Association (CBA)—which has long criticized CFPB policies—acknowledged that the agency helps maintain fair competition. Without it, fintech firms could dominate the market, leaving traditional banks struggling to compete.

The Bigger Picture: Could This Lead to Another Financial Crisis?

Some financial experts warn that eliminating the CFPB could bring back the same risky lending practices that led to the 2008 financial crisis.

Additionally, small banks and credit unions—which were never directly regulated by the CFPB—would be at a greater disadvantage compared to both large banks and fintech companies.

A former CFPB lawyer put it bluntly:

“Banks are about to live in a world where the entire non-bank financial industry is unregulated while they are still overseen by multiple agencies. It’s a world where Apple, PayPal, and Cash App run wild. Good luck.”

What’s Next?

The future of the CFPB is now in the hands of the courts. A federal judge is reviewing a lawsuit that could determine whether the agency survives. If the CFPB disappears, banks will likely face more competition, not less—a scenario they never expected.

Source: CNBC,com, ChatGPT