Should You Petition for Bankruptcy in 2026?

Capstone believes the Trump administration is intent on dismantling the Customer Financial Protection Bureau (CFPB), even as the agencyconstrained by minimal budget plans and staffingmoves forward with a broad deregulatory rulemaking agenda favorable to market. As federal enforcement and guidance decline, we anticipate well-resourced, Democratic-led states to action in, developing a fragmented and unequal regulative landscape.

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While the supreme outcome of the litigation stays unidentified, it is clear that customer financing business across the community will take advantage of reduced federal enforcement and supervisory threats as the administration starves the agency of resources and appears devoted to minimizing the bureau to an agency on paper just. Given That Russell Vought was called acting director of the company, the bureau has faced litigation challenging different administrative choices meant to shutter it.

Vought also cancelled numerous mission-critical agreements, provided stop-work orders, and closed CFPB offices, to name a few actions. The CFPB chapter of the National Treasury Personnel Union (NTEU) immediately challenged the actions. After evidentiary hearings, Judge Amy Berman Jackson of the United States District Court for the District of Columbia provided an initial injunction stopping briefly the reductions in force (RIFs) and other actions, holding that the CFPB was trying to render itself functionally unusable.

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DOJ and CFPB legal representatives acknowledged that eliminating the bureau would need an act of Congress and that the CFPB remained accountable for performing its statutorily needed functions under the Dodd-Frank Wall Street Reform and Customer Protection Act. On August 15, 2025, the DC Circuit issued a 2-1 choice in favor of the CFPB, partly abandoning Judge Berman Jackson's preliminary injunction that blocked the bureau from carrying out mass RIFs, however staying the decision pending appeal.

En banc hearings are seldom given, but we anticipate NTEU's request to be approved in this instance, offered the comprehensive district court record, Judge Cornelia Pillard's prolonged dissent on appeal, and more recent actions that signal the Trump administration means to functionally close the CFPB. In addition to prosecuting the RIFs and other administrative actions intended at closing the company, the Trump administration aims to develop off budget cuts incorporated into the reconciliation bill passed in July to further starve the CFPB of resources.

Dodd-Frank insulates the CFPB from direct appropriations by Congress, rather authorizing it to request funding straight from the Federal Reserve, with the quantity capped at a percentage of the Fed's operating costs, subject to a yearly inflation adjustment. The bureau's capability to bypass Congress has frequently stirred criticism from congressional Republicans, and, in the spirit of that ire, the reconciliation plan passed in July decreased the CFPB's financing from 12% of the Fed's business expenses to 6.5%.

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In CFPB v. Neighborhood Financial Providers Association of America, accuseds argued the financing technique broke the Appropriations Clause of the Constitution. While the Fifth Circuit concurred, the US Supreme Court did not. In a 7-2 choice in May 2024, Justice Clarence Thomas' bulk opinion held the CFPB's financing method constitutional. The Trump administration makes the technical legal argument that the CFPB can not lawfully request funding from the Federal Reserve unless the Fed is lucrative.

The technical legal argument was filed in November in the NTEU litigation. The CFPB stated it would lack cash in early 2026 and might not legally request funding from the Fed, mentioning a memorandum viewpoint from the DOJ's Workplace of Legal Counsel (OLC). Using the arguments made by accuseds in other CFPB litigation, the OLC's memorandum opinion analyzes the Dodd-Frank law, which permits the CFPB to draw funding from the "combined incomes" of the Federal Reserve, to argue that "incomes" imply "profit" rather than "earnings." As a result, because the Fed has been performing at a loss, it does not have "combined earnings" from which the CFPB may lawfully draw funds.

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Appropriately, in early December, the CFPB acted on its filing by corresponding to Trump and Congress saying that the agency required around $280 million to continue performing its statutorily mandated functions. In our view, the brand-new but repeating financing argument will likely be folded into the NTEU litigation.

The majority of consumer finance business; mortgage loan providers and servicers; auto lending institutions and servicers; fintechs; smaller consumer reporting, financial obligation collection, remittance, and automobile financing companiesN/A We expect the CFPB to push strongly to implement an enthusiastic deregulatory agenda in 2026, in tension with the Trump administration's effort to starve the company of resources.

In September 2025, the CFPB released its Spring 2025 Regulatory Program, with 24 rulemakings. The program follows the firm's rescission of almost 70 interpretive guidelines, policy declarations, circulars, and advisory opinions dating back to the company's beginning. The bureau released its 2025 supervision and enforcement top priorities memorandum, which highlighted a shift in guidance back to depository institutions and home mortgage lenders, an increased focus on locations such as scams, support for veterans and service members, and a narrower enforcement posture.

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We view the proposed guideline changes as broadly beneficial to both customer and small-business lending institutions, as they narrow prospective liability and exposure to fair-lending examination. Specifically relative to the Rohit Chopra-led CFPB throughout the Biden administration, we expect fair-lending supervision and enforcement to virtually disappear in 2026. Initially, a proposed rule to narrow Equal Credit Opportunity Act (ECOA) regulations intends to get rid of diverse impact claims and to narrow the scope of the discouragement arrangement that restricts creditors from making oral or written declarations intended to prevent a customer from applying for credit.

The new proposition, which reporting suggests will be finalized on an interim basis no behind early 2026, considerably narrows the Biden-era guideline to leave out particular small-dollar loans from coverage, reduces the limit for what is considered a small company, and eliminates lots of data fields. The CFPB appears set to release an updated open banking rule in early 2026, with substantial implications for banks and other traditional monetary institutions, fintechs, and information aggregators across the customer financing community.

The guideline was completed in March 2024 and included tiered compliance dates based upon the size of the financial institution, with the biggest needed to begin compliance in April 2026. The last guideline was immediately challenged in May 2024 by bank trade associations, which argued that the CFPB surpassed its statutory authority in releasing the guideline, particularly targeting the prohibition on charges as illegal.

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The court released a stay as CFPB reassessed the rule. In our view, the Vought-led bureau may think about permitting a "affordable fee" or a similar standard to enable information companies (e.g., banks) to recoup costs connected with offering the information while also narrowing the risk that fintechs and data aggregators are evaluated of the marketplace.

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We expect the CFPB to considerably lower its supervisory reach in 2026 by completing 4 bigger individual (LP) rules that develop CFPB supervisory jurisdiction over non-bank covered persons in various end markets. The changes will benefit smaller operators in the consumer reporting, automobile financing, customer financial obligation collection, and international cash transfers markets.