The CFPB may be frozen, but RESPA hasn’t gone away

Although this news has certainly garnered headlines — just as Bessent did a week earlier in telling CFPB employees to halt bureau activities — enforcement experts believe the skipping of a funding allotment won’t have a massive impact on compliance with federal statutes. These include the Real Estate Settlement Procedures Act (RESPA) and the Unfair, Deceptive or Abusive Acts and Practices Act (UDAAP), which the CFPB enforces. 

Additionally, like the pause Bessent put in place — which experts noted was par for the course for incoming administrations and is typically used by a new administration to review all open enforcement matters before deciding which to continue pursuing — this is not the first time the CFPB has skipped a funding allotment. 

Under Mick Mulvaney, the CFPB’s director during much of the first Trump administration, the bureau also skipped a funding round. 

“The bureau didn’t miss a beat. I don’t remember ever being told that we couldn’t pursue something because we lacked the funds,” said Jeff Ehrlich, a former CFPB deputy enforcement director.

In a post on X, Vought called the bureau’s current balance of $711.6 million “excessive in the current fiscal environment.” 

While Ehrlich said nothing of the budget being “excessive,” he did note that its current balance could fund the bureau “for a while.” But the Consumer Financial Protection Act (CFPA) under the Dodd-Frank Act — which established the CFPB — states that the bureau’s director must request the funds that are reasonably necessary to carry out the functions of the bureau.

This means that at some point, the director is obligated by statute to request the money to do what Congress has mandated the bureau to do. If this is not done, enforcement experts believe legal action may be taken. 

Although some may think that the pause on CFPB activities and Vought’s funding decision may signal that it is OK for companies to skirt certain rules like RESPA and UDAAP, enforcement experts don’t believe that is the case. 

“I do not think that any compliant minded company will think that what is going on at the CFPB (or what is not going on) is a greenlight for them to do what would otherwise be a RESPA violation,” Francis Riley, a partner at Saul Ewing LLP, wrote in an email. “The CFPB freeze is not a freeze on the need to comply with RESPA or the CFPA’s UDAAP prohibitions.” 

Riley also noted that state attorneys general also have the authority to enforce both state RESPA and UDAAP rules, if they exist, as well as the federal versions of the rules. Additionally, private citizens may also file class-action claims of RESPA or UDAAP violations. 

“The CFPB typically considered activities occurring in 50 states, not just one specific state.  State AGs and class action lawyers have the flexibility to drill down on only what is happening in one state,” Riley wrote. “Given that the AGs know the CFPB, at least for a while, will not be looking at potential violators in their state, they will ramp up oversight, investigations and enforcement actions. So the risk is greater with the CFPB current ‘nap.’”

RESPA attorney Marx Sterbcow, the managing partner of Sterbcow Law Group, expressed similar viewpoints.

“They are capping funds not because they are closing the CFPB, but because they are streamlining it,” Sterbcow said. “The federal government cannot shut down the CFPB without Congress signing off on it.”

He also noted that while the pause may cause the bureau to miss court deadlines on active litigation — if the cases are not stayed pending the CFPB’s pause, resulting in the cases being dismissed — this should not cause an uptick in nefarious activities when it comes to UDAAP and RESPA. Like Riley, Sterbcow believes that more state AGs will get involved in RESPA and UDAAP enforcement to circumvent some of the bureau’s current loss of power. 

So, what does this all mean for settlement service providers and other firms in the housing industry? 

“I think everyone who falls under RESPA and UDAAP should continue following those laws as we understand them to be interpreted — don’t change a thing,” said Chuck Cain, a title industry attorney and the president of Alliance Solutions. “I don’t think there is going to be a sudden rush to bad acting. Someone, whether it is the CFPB or state attorneys general, will eventually enforce these rules, so it is best to just stay the course.“ 

Enforcement experts don’t feel that of Bessent’s or Vought’s actions will have much of an impact on business compliance with statutes like RESPA and UDAAP, Democratic lawmakers feel differently.

In a statement issued on Friday, Rep. Maxine Waters (D-California), on behalf of Democrats in the House Financial Services, said that “without the CFPB, hardworking families would have no federal agency solely focused on protecting them from predatory financial firms or to make sure they are compensated after being mercilessly ripped off.” She also claimed that “deleting” the CFPB, as Elon Musk has indicated he would like to do, “would devastate the economy.” 

Waters, along with Sen. Elizabeth Warren (D-Mass.), met Monday afternoon outside the CFPB headquarters to “demand answers regarding Elon Musk’s takeover of the agency.” 

Waters and Warren said they believe that Vought “has taken illegal action to halt all agency operations, shut down the agency’s website, and close the CFPB’s headquarters.” They also indicated a belief that this is part of the “Trump Administration’s systematic plan to gut the agency.”