Jon McKernan, critic of overregulation and crypto debanking, appears before Senate for CFPB nomination

Former FDIC board member Jonathan McKernan is being questioned on Thursday by the Senate Banking Committee on whether he is fit to lead the Consumer Financial Protection Bureau (CFPB). 

McKernan recently stepped down from the Federal Deposit Insurance Corporation, after President Donald Trump nominated Rodney Hood as a member, who, if confirmed, would exceed the maximum number of Republicans on the board. President Biden nominated McKernan — a graduate of Duke Law — to serve as a Republican member of the FDIC’s Board in 2022, to maintain the partisan balance required by law.

Like other Trump nominees, McKernan has developed a reputation as a strict opponent to regulatory burdens. He has previously criticized the idea that regulators have “statutory authority” to determine the law and said they must prevent “duplicative regulatory notices.”

McKernan noted on Thursday that the CFPB is facing a “crisis of legitimacy” and must “be made accountable for past excesses.” 

“All too often,” he said in his opening statement, “the CFPB has gotten in the way of its own vision. It has acted in a politicized manner. It has pushed beyond the limits of its statutory authority. It has seized opportunities to expand beyond its jurisdiction and its power. It has offended our basic notions of fairness and due process when it has regulated by enforcement.”

In recent weeks, Trump and Department of Government Efficiency lead Elon Musk have worked to dismantle the CFPB, including shuttering its office and sending employees home. Sen. Elizabeth Warren (D-Mass.), during the hearing, said this will have a “devastating effect” and allow financial service providers “to scam and cheat people out of their hard-earned money.”

What is the CFPB?

Proposed by crypto-critic Sen. Warren during the Great Financial Crisis, the CFPB is a U.S. federal agency tasked with protecting consumers and overseeing financial products and services — like mortgages, credit cards and loans — to ensure fairness, transparency and compliance with consumer protection laws.

Despite criticisms of overregulation, McKernan noted the CFPB has done good work in protecting consumers from data theft, which represents a risk to privacy and national security. “I’m in the game of evaluating whether the CFPC is fair, not on the level of enforcement actions,” he said. 

“I’m going to enforce the law,” McKernan said. “My record speaks to my willingness to assert my point of view.”

The agency, which has returned about $21 billion to American borrowers and lenders, has also faced criticism from many — including from inside the crypto industry — for potentially overstepping its mandate. 

“The CFPB is unconstitutional on the face of it. And even if it wasn’t, it should be deleted as we already have DOJ to prosecute fraud, and (many) other financial services regulators," Brian Armstrong, CEO of Coinbase, said in a post earlier this month. "It’s an activist organization that has done enormous harm to the country."

While the CFPB has not taken major enforcement action against crypto firms, it has received over 8,300 crypto-asset complaints largely related to romance and “pig butchering” scams between 2018 and 2022, according to a bulletin during the crypto market downturn two years ago. 

Operation Choke Point 2.0 Connection

Nic Carter, founder of Castle Island Ventures and CFPB critic, identified the agency’s role in “Operation Choke Point 2.0,” a term he coined to describe an alleged government conspiracy to shut out crypto market participants from the U.S. banking system.

During the nomination process, McKernan noted that at the FDIC he “investigated” the collapse of the second, third and fourth “largest bank failures” in the U.S. and “ensuing stress” as well as “several significant, and sometimes contentious rulemakings.”

Although he hasn't spoken directly about the OCP2.0 issue, on McKernan has praised the work of WSPN CEO Austin Campbell and others for helping to drive attention to "this abuse of power."

“The U.S. banking system … is increasingly unattractive. It is also failing various market tests," McKernan posted on X , quoting an essay "on debanking" by libertarian economist at George Mason University Tyler Cowan. "How innovative is it? … Can it integrate with crypto? Relative performance is sliding, there is no other way to put it."

As an FDIC board member, McKernan was co-chairman of a special committee investigating allegations of sexual harassment and professional misconduct at the agency, including against FDIC chairman Martin Gruenberg, who resigned following an independent third-party review.

Gruenberg was reportedly an architect of both Operation Choke Point 2.0 and the Obama-era 1.0 campaign, which sought to limit banking activities around “controversial” businesses, Carter told The Block. Sen. Tom Emmer specifically claimed that Gruenberg was instrumental in drafting the "pause letters" sent to banks urging them to halt crypto services, which contributed to the collapse of crypto-friendly banks like Silvergate and Signature.

"The FDIC used offline conversations and threats of formal supervisory actions to pressure banks to deny service to digital asset firms, their employees, and even their customers," Congressman and Chairman of the Subcommittee on Oversight and Investigations for the Financial Services Committee Dan Meuser said earlier this month.

When questioning McKernan, Sen. Mark R. Warner, D-Va., noted that part of the reason Signature Bank failed was due to “shortfalls in terms of personnel,” cautioning the nominee before taking the “chainsaw approach” to the agency.