CFPB Wants to Scale Back Use of Civil Penalty Fund

America’s consumer protection watchdog has proposed scaling back use of its civil penalty fund.

This latest change at the Consumer Financial Protection Bureau (CFPB), announced Wednesday (June 18), would restrict use of the fund to compensation for consumers impacted by companies subject to civil actions.

It marks the latest example of the CFPB’s reduced scope under President Donald Trump, following actions that include the proposed firing of a bulk of the agency’s staff.

The rule in question, established in 2013, allows the CFPB to — in situations where victims cannot be located or payments are not practicable — use funds for consumer education and financial literacy programs.

In the 12 years since the rule was created, the CFPB has allocated $3.6 billion from the fund for “victims of activities for which civil penalties have been imposed under federal consumer financial laws,” the bureau said in its proposal, published to the Federal Registry.

“The Bureau now believes that the 2013 Rule provides neither adequate guardrails for the agency’s exercise of its discretion nor adequate transparency to the public regarding a potentially significant expenditure,” the CFPB wrote.

“In the absence of adequate guardrails, there could be incentives to bring enforcement actions for the purpose of aggrandizing the operational scope of the agency.”

Therefore, the CFPB proposes rescinding the consumer education/financial literacy programs, while noting it “does intend to consider whether revised procedures would be appropriate to address these concerns with respect to any future exercises of this discretionary authority.”

The potential new rule comes as the CFPB faces a number of threats to its survival. In addition to the proposed job cuts, a provision in the budget bill now before the U.S. Senate would eliminate the agency’s funding.

“In terms of the mechanics of the CFPB’s funding sources, the CFPB has traditionally been funded by the Fed,” PYMNTS wrote earlier this week.

“The key metric has been that the funds have not been allowed to exceed a ceiling of 12% of the Fed’s operating expenses recorded in 2009. The CFPB indicated in its latest financial report that the transfer cap, as detailed in fiscal 2024, stood at $785.4 million. The Senate provisions unveiled Friday would set that cap at 0%.”

Meanwhile, the  Office of the Inspector General, an independent watchdog overseeing the Federal Reserve and the CFPB, is reviewing the administration’s attempts to fire most of the CFPB’s staff and cancel the bureau’s contracts.

As covered here last week, the review follows a request by Sen. Elizabeth Warren and Sen. Andy Kim, who sought an investigation into the legality of those actions and how they would affect the CFPB’s mission.

Also last week, PYMNTS looked at efforts by state-level authorities to fill in some of the gaps left by the CFPB’s regulatory rollback.

For example, New York State Attorney General Letitia James has sued earned wage access providers DailyPay and MoneyLion, accusing them of illegal and deceptive conduct and abusive lending practices.

In Illinois, state-level legislation would create consumer financial protection laws and a financial protection fund.

“The lack of a dedicated financial services regulator with broad authority over providers of financial products and services has left the people of Illinois vulnerable,” the text of the bill said.

“In many ways, the expansion of the state financial regulator mirrors some of the core oversight of the CFPB, with tenets covering risk, cybersecurity and licensing of service providers,” that report said. “Last month, Pennsylvania expanded its enforcement authority and launched new consumer-facing reporting and complaints tools.”