The Trump Administration Gets Its Man at the CFPB

Controversy Abounds

Until last Friday, the CFPB was led by Richard Cordray, who has been the CFPB’s only director since the Bureau’s 2011 inception. But Cordray resigned last Friday, igniting a partisan battle over who temporarily fills the director role until a new director is appointed by the President and confirmed by the Senate.

Cordray ignited the clash by elevating Leandra English, the agency’s Chief of Staff, to Deputy Director, prior to announcing his resignation. (By appointing English as Deputy Director, Cordray intended to have English step up as Acting Director upon his departure). A few hours after Cordray’s announcement, however, President Trump released a statement naming Office of Management and Budget Director Mulvaney as the Acting Director. In response, English filed a lawsuit against the Trump administration and Mulvaney in the U.S. District Court for the District of Columbia (the D.C. District Court) on Sunday night, commencing a brief and intense legal battle.

The CFPB is no stranger to intense legal battles surrounding its Director, of course. Since its inception, the CFPB has operated as an independent agency with only a single director that is only removable for cause by the President, a structure that appeared to be intended to insulate the agency from political whims. Last year, however, the U.S. Court of Appeals for the District of Columbia Circuit (the D.C. Circuit) ruled that the Bureau’s single director structure is unconstitutional, as we reported here and here. Those who have been following the CFPB since its inception will also remember that for at least a year following the opening of the agency in July 2011, Cordray’s appointment as Director was under fire because the appointment was made and accepted during a congressional recess pursuant to the Constitution’s vacancy clause. (Director Cordray was ultimately confirmed by the Senate in July 2013, putting to rest the issue of whether his appointment was legitimate.)

The Most Recent CFPB Director-Related Lawsuit

The emergency temporary restraining order filed by English against Mulvaney and President Trump asked the D.C. District Court to declare English the official Acting Director of the CFPB pursuant to a provision in the Dodd-Frank Act, the law creating the CFPB, that mandates the deputy director to “serve as the acting Director in the absence or unavailability of the Director.” (See 12 USC § 5491(b)(5)(B).)

The Trump administration, in its responsive pleadings, relied on the Federal Vacancies Reform Act to argue that, even if the Dodd-Frank Act provides a method for filling the position in the case of absence or unavailability, the President has ultimate authority to designate the acting official. (See 5 USC §§ 3345 et seq.) According to the administration, while the “Vacancies Reform Act is not the ‘exclusive means’ for temporary designation of an Acting Director,” a President may still use it to fill a director vacancy.

Both sides cited legislative history for their positions. According to English, an earlier version of the Dodd-Frank Act expressly mentions use of the Vacancies Reform Act to guide the succession of the director position, but this language was dropped from the final enacted version. According to English and her supporters, this legislative history supports the argument that Congress intentionally desired to abrogate the applicability of the Vacancies Reform Act. In response, the Trump administration asserted the earlier reference to the Vacancies Reform Act was inapplicable to the acting director position. Instead, the Trump team used legislative history from the Vacancies Reform Act to argue that the Vacancies Reform Act should still apply.

Ultimately, Judge Timothy J. Kelly, a Trump appointee and former Senate Republican staff member who joined the D.C. District Court earlier this year, agreed with the President and declined to block Mulvaney’s appointment. Although English apparently may appeal the decision, for the time being, Mulvaney appears to have solidified his standing as the Acting Director of the CFPB.

Mulvaney as Acting Director

President Trump’s choice to appoint Mulvaney has clear implications for the future of the CFPB. Already, Mulvaney has imposed a 30-day freeze on hiring and new rulemakings, and he has doubled down on previous negative statements he has made about the agency. Indeed, Mulvaney was a fierce opponent of the Bureau during his time in Congress, repeatedly criticizing its actions and favoring its restructuring. Mulvaney is likely to significantly curtail the CFPB’s regulatory and enforcement activities, setting the stage for the appointment of a permanent, Senate-confirmed director who will likely share his views.

The rulemaking freeze may be of particular interest as the prepaid card industry awaits resolution regarding whether it will need to come into compliance with the new prepaid account rule by April 2018 or by a later date, as industry stakeholders have requested. Prepaid companies are also awaiting a final rule on several proposed changes to the underlying prepaid account rule. The industry has already signaled that it will push even harder for a delayed effective date and for industry-friendly changes to the prepaid account rule in light of the CFPB leadership transition. The freeze could also halt ongoing enforcement or supervisory activity against financial institutions accused of wronging consumers.

If Mulvaney’s temporary directorship continues, President Trump could stall appointing a permanent director until practically the end of his administration. Because CFPB Directors have a five-year-term, Trump could effectively influence the priorities of the CFPB for a decade or more.  

With all of this in mind, the CFPB’s approach going forward remains very uncertain. Due to its funding structure, the CFPB Director is authorized to request from the Federal Reserve “the amount determined by the Director to be reasonably necessary to carry out the authorities of the Bureau under Federal consumer financial law.” (See 12 U.S.C. 5497(a)(1).) Indeed, the CFPB generally requests funds, up to statutory limits, from the Federal Reserve’s budget. As such, Mulvaney could effectively shutter the agency by requesting only the barest minimum of funds from the Federal Reserve.