‘Exit Packages’ and Defunding Push May Drastically Reshape Financial Regulators

The shakeup on Capitol Hill — still ongoing, as the Trump administration settles in for its second round, as the new Congress has been seated — will extend to financial regulations.

These disruptions will likely touch the very structure of those agencies — the FDIC and the CFPB chief among them. The recent news regarding so-called “exit packages” being extended to millions of federal workers may bring with it a significant march of feet toward the exits at those agencies. By extension, any exodus might truncate the efforts to put forth new rules and regulations, or at least carry on with pending changes to the way banks and FinTechs are monitored.

For the chief critics of these agencies — and they’ve been vocal critics through the past few months — there’s the advantage of limiting regulatory reach without resorting to Congress to do so.

But, on the other side of the equation, a renewed push in Congress to defund the CFPB represents an additional pressure.

As had been widely reported this week, the Trump administration has offered an estimated 2 million federal workers a “deferred resignation” option — where, if they quit by the end of next week rather than opt to return to work in-office on a full time basis, they’d get eight months’ worth of severance.

Should they choose the option, they’d also get benefits through that period, ending in September. The email that had been sent by the Office of Personnel Management takes note of future plans, in general, where “while a few agencies and even branches of the military are likely to see increases in the size of their workforce, the majority of federal agencies are likely to be downsized through restructurings, realignments, and reductions in force. These actions are likely to include the use of furloughs and the reclassification to at-will status for a substantial number of federal employees.”

The read-across here is that staffing levels will shrink, either by choice (on the part of employees) or from the top down (by the administration itself).

The CFPB is an instructive example here. As detailed in publications such as the “Annual Employee Survey,” there are about 1,700 employees at the bureau. The White House expects, according to reports this past week, that between 5% to 10% of federal employees will take the option to resign and be paid through September. Assume the 10%, and you can see that the staffing impact. At the FDIC, for another example, there are a reported roughly 5,300 permanent workers tied to that agency.

The attrition would take place during a timeframe when, via executive actions taken by Trump last week, all agencies have been ordered to pause rule-making.

In the meantime, as staffers presumably will be resigning en masse by the end of next week, Republican Texas Sen. Ted Cruz introduced the “Defund the CFPB Act.” The bill is arguably blunt in its ambition. The proposed legislation would “mend the Consumer Financial Protection Act of 2010 to limit to $0 the amount that the Director of the Bureau of Consumer Financial Protection may request to fund the activities of the Bureau.”

In a statement, Cruz contended that “the CFPB is an unelected, unaccountable bureaucratic agency that has imposed burdensome and harmful regulations on American businesses, banks, and credit unions. It is an unchecked Obama-era executive arm and the Federal Reserve should not be transferring funds to it.” Last year, as PYMNTS reported, the Supreme Court ruled that the bureau’s funding mechanism was and is in fact constitutional — and so the battle seems to be headed to Congress.

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