By Jonas Hoerler, Chief Regulatory Counsel, RegCheck & Diane Jenkins, Partner, Sandler Law Group

For mortgage lenders and servicers as well as other players in the consumer financial services industry, it may truly be the end of an era.  Since its inception, the Consumer Financial Protection Bureau (“CFPB”) has been a guiding force to the financial services industry.  With the current administration scaling back and refocusing the CFPB, the financial services industry is left with uncertainty as to what the future holds.

Created in response to the 2008 financial crisis as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB was established to safeguard consumers from unfair, deceptive or abusive practices by the financial services industry and to level the regulatory playing field between bank and nonbank financial services companies.  Throughout its operating history, the CFPB has implemented regulations addressing nearly all aspects of the mortgage lending and servicing process, regulations which were time-consuming to comply with.

While the CFPB was given primary oversight of consumer financial protection, other federal financial regulators such as the Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve and the Office of the Comptroller of the Currency (“OCC”) still have authority in this space.  Although these agencies have also experienced some reduction in staff, they do have the authority to enforce laws pertaining to the banks under their supervision.  However, according to 2023 HMDA Data, independent mortgage bankers originated approximately 63% of first lien purchase mortgages and 67% of first lien refinance loans.  Such entities are not typically under the purview of other federal agencies and will be significantly less regulated at a federal level with the reduction  of the CFPB.

The CFPB’s Chief Legal Officer issued a staff memo this week indicating the agency intends to focus its supervision efforts on pressing threats to consumers, particularly those that impact service members and their families as well as veterans.  The memo also indicated that the agency will prioritize mortgage supervision but reduce supervisory efforts in the areas of student loans, medical debt, and digital payments.  In addition, the agency intends to “respect federalism” by focusing primarily on areas where states do not have regulatory and supervisory authority. The CFPB followed up this memo by instituting another reduction in force by laying off 90% of its staff, although this action is currently being blocked by a federal judge.  Following the intended layoffs, the agency will reportedly be left with approximately 200 employees.

States Respond to Strengthen Lending Oversight

In response to the ongoing restructuring of these federal agencies, state governments and their banking agencies are expected to take decisive actions to increase oversight of consumer protections, including mortgage banking regulations, to fill the void. One of the key developments in the battle to strengthen consumer protections at the state level actually came from the CFPB during the tenure of former Director Rohit Chopra, appointed under the Biden administration. Towards the end of Chopra’s tenure, the CFPB emphasized empowering state attorneys general and state regulators to enforce federal consumer protection laws, and even went a step further to provide recommendations to states on how they could update their laws and regulations to bolster regulatory oversight.

As part of this effort to further support state-level action, the CFPB released a comprehensive report in early 2025 detailing strategies for states to effectively adapt their laws and regulations in response to new consumer protection challenges in the financial services sector. The report, titled Strengthening State-Level Consumer Protections, outlined key areas where state governments could focus their efforts to safeguard consumers, especially in the wake of reduced federal oversight.

The 2025 report highlighted several areas of concern, including the need for states to enforce stronger anti-predatory lending laws and pursue regulation against common schemes such as junk fees and other abusive lending practices. States were encouraged to enhance rules regarding loan disclosures, fees, and interest rates to ensure consumers are not subjected to unfair or abusive lending practices.

State-level banking agencies and regulators are well-positioned to act, having historically worked in tandem with federal authorities but also wielding considerable power independently. With many federal protections being impacted, these state entities are reassessing their approach to consumer protections, particularly in areas like mortgage lending, predatory loans, and transparency in financial products.

A growing number of states, particularly those with progressive legislative agendas, have begun considering stricter regulations for mortgage lenders and financial institutions operating within their borders. States like California, Massachusetts, and New York are already leading the charge by pursuing legislative initiatives that address consumer rights in the absence of strong federal oversight.

The New York FAIR Business Practices Act: A Direct Response

One of the most noteworthy pieces of legislation in this new wave of state-level consumer protection is New York's FAIR Business Practices Act (Financial Accountability, Integrity, and Responsibility), introduced in 2024 and gaining momentum in 2025. The Act represents an effort by New York to protect its citizens from predatory business practices in the event of less federal safeguards.

The FAIR Business Practices Act (the “Act”) focuses on strengthening mortgage lending regulations, increasing transparency in lending practices, and ensuring that financial institutions in New York adhere to stringent ethical standards. A core provision of the Act mandates that all mortgage lenders operating in the state conduct a thorough and transparent assessment of a borrower’s ability to repay, a move that echoes some of the stronger elements of the Dodd-Frank regulations, particularly the "ability to repay" rule that has been under the purview of the CFPB.

While New York’s initiative represents one of the most robust state-level responses, other states are expected to follow suit. In fact, several states have already expressed interest in similar measures or have begun drafting their own legislation to shield consumers from the effects of reduced federal oversight, such as a bill in Illinois to enact the Illinois Consumer Financial Protection Law. 

State Attorneys General Taking Action

State Attorneys General, who serve as the chief legal officers in their respective states, have also become more active in pursuing enforcement actions against financial institutions that violate state and federal consumer protection laws. Former CFPB Director Chopra actively encouraged state Attorneys General to step into the breach left by a reduced federal role, including in mortgage banking. By reminding state Attorneys General of their existing authority to enforce certain federal consumer protection laws, Chopra intended for states to continue to uphold certain regulatory frameworks, including TILA and RESPA lending requirements, even as the CFPB’s role was being diminished.

With the current rollback of federal oversight, many of these Attorneys General are preparing to intensify their efforts. By taking legal action against institutions that fail to comply with both state and federal regulations, state attorneys general are positioning themselves to step in the CFPB’s shoes, especially in areas in which they were given explicit authority to enforce certain federal financial consumer protection laws, as they were under the Dodd-Frank Act and the Consumer Financial Protection Act.  Although not specific to mortgage lending, three recent actions by state Attorneys General provide examples of heightened state enforcement. New York Attorney General Leticia James recently filed two lawsuits against payday lenders. Additionally,  New Jersey Attorney General Matthew Platkin and the Division of Civil Rights issued a Finding of Probable Cause (Finding) of violations of New Jersey’s Law Against Discrimination (LAD) through unlawful lending discrimination and unlawful employment discrimination. The Finding named a nonbank business engaged in cash advances and consumer lending.

Private Right of Action

In addition to states ramping up their enforcement activity, borrowers and plaintiffs attorneys may see the reduction in CFPB enforcement activity as an opportunity to pursue litigation based on the private right of action provided to borrowers in many of the federal consumer protection laws.  The Fair Housing Act (FHA), Truth in Lending Act (TILA), the Home Ownership and Equity Protection Act (HOEPA), the Equal Credit Opportunity Act (ECOA), and the Real Estate Settlement Procedures Act (RESPA), among others, provide borrowers with a private right of action against mortgage lenders which can be costly to defend and result in significant damages.

The CFPB’s Consumer Complaint Database reports that 20,827 mortgage related complaints were filed between April 8, 2024 and April 8, 2025. Borrowers who feel their complaints are largely going unanswered by the CFPB may, seeing no other option, turn to lawsuits to find relief.

Moreover, the courts may consider the impact of the diminished role of the CFPB when these cases land in their courtrooms.  In a recent lawsuit by a group of Mississippi banks against the CFPB over the CFPB’s new rule limiting overdraft fees, the judge overseeing the case allowed two non-profit consumer groups to intervene largely because the CFPB appeared poised to abandon its defense of the overdraft rule. The non-profit groups support the overdraft rule which prohibits larger banks and credit unions from charging overdraft fees in excess of $5.  In granting the request for intervention, the court stated:

Had the administration and leadership of the CFPB not changed in January, the CFPB would have mounted a vigorous defense of the overdraft rule in this litigation.  Its first brief opposing injunctive relief suggests as much. But the situation changed. The CFPB might now seek to abandon the overdraft rule. Indeed, its ‘agreed motion to stay’ suggests as much. And the CFPB's failure to take a position on intervention is telling; the agency could have used that opportunity to communicate the vigor of its anticipated defense, but elected not to. The adequacy of the CFPB's representation is therefore legitimately in question. It may fall to the movants to defend the overdraft rule.

The overdraft rule appears to be dead in the water as both the House and the Senate recently approved resolutions to overturn the overdraft rule.  However, the court’s willingness to allow intervenors to step in and defend a CFPB rule in the absence of a defense by the CFPB provides insight as to how the courts may be impacted by the lack of enforcement by the CFPB.

Industry response

The aggressive lending that led to the 2008 financial crisis would give credence to the argument that the industry needs to be subject to government oversight.  However, mortgage lending is a far cry from what it was before the 2008 financial crisis when a borrower’s ability to repay the loan was less scrutinized and  predatory lending practices were more common. 

Regulation of the financial services industry prior to the crisis largely focused on bank soundness rather than consumer protection.  Presumably, even lenders would agree that some guardrails were needed in order to protect borrowers from bad actors and restore consumer faith in the financial service industry as a whole.  However,  some would  also agree that the pendulum subsequently swung too far in the opposite direction, burdening the industry with costly and cumbersome compliance requirements.

Even with a perceived void in regulatory oversight, it appears unlikely that the mortgage industry will revert to the type of lending practices that led to the 2008 crisis.  Most lenders have invested substantial time and effort into improving compliance and risk management practices.  Additionally, the industry has worked hard to rebuild trust in the financial services sector and has incentive to preserve that trust in order to protect their bottom line.  If the industry can maintain sound lending practices and consumer protections, even in a period of less aggressive federal supervision, it will likely be in a better position to manage the current downturn in mortgage lending.  

Since the financial crisis, the industry has demonstrated its ability to respond and adapt to changing regulatory climates.  Following the implementation of the Dodd-Frank Act, mortgage companies spent significant time and resources to ensure compliance with complicated laws and regulations governing consumer financial services.  Even more impressive was the speed at which the mortgage industry adopted numerous new programs to aid borrowers dealing with financial hardships due to the COVID-19 pandemic.  As the regulatory environment evolves, financial service companies must continue to be prepared to adapt to changing requirements.

Conclusion

While the restructuring and refocusing of the CFPB and other federal agencies presents significant challenges, state governments and banking agencies are expected to ramp up enforcement activity to ensure that the interests of their constituents remain safeguarded. The introduction of measures like the New York FAIR Business Practices Act reflects a growing recognition that, in the absence of robust federal supervision and enforcement of existing protections, state-level regulations may need to fill the gap to prevent a recurrence of the systemic abuses that led to the 2008 financial crisis.

As more states consider following New York’s lead, it is clear that a new era of state-led consumer protection may be on the horizon. With state attorneys general, regulators, and legislators taking a more aggressive stance on mortgage banking oversight and consumer rights, the future of consumer protection may very well lie in the hands of individual states—especially as federal protections continue to erode under the Trump administration’s policies.

The downturn in the market has certainly driven lenders to think creatively about how to attract borrowers.  However, social media and consumer protection groups play a large role in molding market sentiment and can significantly impact a company’s reputation if they are perceived as taking advantage of consumers.  While this doesn’t eliminate all bad actors, the mortgage industry certainly has significant reason to tread lightly when pulling back on processes and procedures which benefit consumers in order to retain consumer faith in the industry overall.

While it is impossible to predict the role the CFPB will play in consumer financial protection going forward and how the void will be filled, there is no doubt that the regulatory landscape for financial service providers will change significantly in the coming year.  The industry has shown its ability to adapt to ever-evolving compliance requirements and will need to be prepared to accommodate the significant changes which are sure to come.