Consumer Law & Policy Blog

Mulvaney Wants Congress to Block CFPB Payday Lending Rule and is Reviewing Pending Enforcement Cases

by Jeff Sovern

So reports the American Banker. 

Mulvaney can't simply rescind the payday lending rule without going through the time-consuming notice and comment process. But if the rule takes effect, and the industry challenges it, what happens if Mulvaney orders the CFPB lawyers not to defend the rule? Does the CFPB have an obligation to defend the rule once it takes effect? What has happened in the past when a change in administrations led to changes in views about the wisdom of an already-adopted rule? If you know, please post a comment.

Dodd-Frank Authors, Including Dodd And Frank, on How Congress Didn't Want the Vacancies Act to Apply to the CFPB

The architects of the Dodd-Frank Act, including former Senator Dodd, former Representative Frank, and former Treasury official Michael Barr, held a press conference on Thursday to make the point that Congress did not want the Vacancies Act to apply to the CFPB.  The American Banker has a report here.  Excerpt:

They said a federal judge erred when he ruled this week that the 2010 financial reform law did not take precedence over the Federal Vacancies Reform Act, which broadly allows a president to appoint any Senate-confirmed appointee as interim head of an independent agency.

"This was a choice we made very deliberately and the notion that that was just a suggestion on our part and that the president can pick or choose [a CFPB successor] makes no sense," Frank said on a conference call with reporters.

Dodd said that under the law, "the president cannot just create a director."

"We had the choice of keeping the Vacancies Act, but rejected that choice and wrote the language that was in the bill. We did not just call the CFPB an independent agency, we created an independent agency," Dodd said.

And for more on Frank's view on this as well as related matters, see his score-settling essay in The Daily Beast, Here’s the Truth About That Vacancy at the Consumer Bureau. Here's the first paragraph:

I take some pride in the fact that I upset Wall Street Journal editorial board members so much that they lose whatever cool they generally have when I am their subject. My favorite example is still their November 6, 2007 attack on me for sponsoring the bill to restrict banks from issuing subprime mortgages to people unlikely to be able to pay them back—the root cause of the 2008 crash. Oddly celebrating the fact that 80 percent of the mortgages were paying on time so far—not generally considered a sign of good lending practices—they denounced me for barring low-income minority group members from homeownership. (They have impressively obliterated that from their memory so that they now regularly blame liberals for being the enablers of the lending practices we prohibited over their objection.)

Trump CFPB Director Shortlist Said to Consist of Hensarling, Zywicki & Noreika

So says Politico, here. According to the report, the nominee could be announced in January.

CFPB Judge Promises to Decide Case Quickly as DOJ Attorney Refuses to Pledge that English Won't Lose Job

The Wall Street Journal reports here. Excerpt:

Asked by the judge if he could provide assurance that the administration wouldn’t take any adverse action against Ms. English that could immediately affect the case, [Brett Shumate, deputy assistant attorney general for federal programs] replied, “Loss of a position is not irreparable harm.”

English v. Mulvaney & Trump: Some Reasons Why It Matters

by Jeff Sovern

A couple of people have suggested to me that it doesn't really matter who wins as between English and Mulvaney because Trump will still get to nominate a new director for a five-year term.  I think that's wrong for several reasons.

First, the obvious: the process of nomination and confirmation is not instantaneous, and so during the interval between those two events, the CFPB will continue to make decisions. Consumers will be better off if a consumer advocate makes them.

Second, as others have observed, the CFPB is supposed to be independent of the president. Mulvaney reports to the president in his role as head of OMB, and so the CFPB's independence is compromised.  Some have also pointed out that the CFPB director sits on other governmental panels which are also supposed to be independent of the president. Presidents can direct agencies within their control to pursue political goals at the expense of the public interest. At least theoretically (and I hope in practice), independent agencies are free to exercise judgment uninfluenced by political goals. To take one extreme example, they can penalize banks without concern that doing so will cost them political contributions. 

Third, the resolution of this dispute will affect the incentives the president faces in appointing a new director.  If English wins, Trump will presumably want to appoint a new director quickly to get one of his people at the CFPB.  If Mulvaney wins, that incentive disappears. In fact, Trump might prefer to delay appointing a new director because he will lose the direct control he can exercise over the Bureau once a new director is confirmed.   Put another way, one argument for ruling for English is that doing so will encourage the president to nominate a candidate  sooner rather than later so that the Bureau is run by someone approved by the Senate in accordance with the statutory scheme Congress established, rather than by an interim leader.

The president is entitled to name a new director as long as the Senate concurs in his choice.  Appointing Mulvaney gives the president control over the supposedly-independent CFPB for an extended period without any senatorial review.  That is not what Congress wanted when it enacted the Dodd-Frank Act. And that's a problem.

 

English Sues Trump, Mulvaney Over CFPB Leadership

The complaint is here.  She is seeking an emergecy TRO. English is represented by CL&P co-coordinator Deepak Gupta.  Meanwhile, Reuters reports that the CFPB General Counsel's Office takes the position that the president can appoint Mulvaney.

Report That English Seeking to Enjoin Mulvaney from Serving as Acting CFPB Director

by Jeff Sovern

Kate Berry has the story in the American Banker.  She reports that the case will be filed in federal court in Washington, D.C., possibly as early as this evening. The report states that one of English's anticipated theories is that Trump is attempting to assert control of an independent agency by naming as its leader someone who reports to him. English is also expected to argue that the Dodd-Frank Act takes precedence over the Vacancies Reform Act.

How the OLC Has Gone Astray on the CFPB

by Jeff Sovern

The Department of Justice's Office of Legal Counsel has now issued an opinion which, not surprisingly, expresses the view that the president can name the acting director of the CFPB. It argues that even though the VRA specifies that it is the "exclusive" way to fill vacancies "unless another statute 'expressly'  provides another mechanism for acting service," and such a statute exists here in the form of the Dodd-Frank Act, the VRA remains an alternative way to fill vacancies. It goes on to conclude that "when the President designates an individual under the [VRA] outside the ordinary course of succession, the President's designation necessarily controls.  Otherwise, the [VRA] would not remain available as an actual alternative in instances where the office-specific statute identifies an order of succession, contrary to Congress's actual intent."

But even assuming that the VRA provides an alternative way to fill the vacancy, there is a more plausible interpretation than the OLC's conclusion in the last quoted sentences above.  Suppose that the CFPB director had not appointed someone to serve as deputy director.  In fact, Director Cordray did not appoint a deputy director until his last day at the Bureau (he had named an acting deputy director, but imagine that he hadn't or that person had left the CFPB before the director did). In that case, the Dodd-Frank Act's succession plan would not have operated, and an alternate way for someone to become acting director would indeed be needed.  The VRA fills that gap.  Thus, the VRA would indeed, as the OLC wishes "remain available as an actual alternative in instances where the office-specific statute identifies an order of succession," and Congress's "actual intent" would not be frustrated.

The OLC's flawed interpretation would actually frustrate Congress's intent in enacting the Dodd-Frank Act succession provision. The OLC's opinion concedes that the Dodd-Frank Act's "reference to 'unavailability' is best read to refer both to a temporary unavailability . . . and to the Director's being unavailable because of a resignation . . . ."  In other words, the OLC agrees that the Dodd-Frank text provides that the deputy director is to serve as the acting director when the director resigns. But the OLC's interpretation of the Dodd-Frank Act succession provision would render that text mere surplusage. The VRA already provided that among the possible acting leaders of an agency is "the first assistant to the office of such officer," which for the CFPB translates into the Bureau's deputy director.  In that light, what would have been the point of saying so in the Dodd-Frank Act?  

As Adam Levitin has pointed out, Congress wanted the CFPB to be independent of the president; it would have wanted the president to have the power to name a leader of the CFPB without senatorial approval only as a last resort, not as a possible first resort. This interpretation accomplishes that goal. The OLC should revise its memo.

UPDATE: Marty Lederman at the Balkinization Blog has a useful post pulling together many of the arguments and responding to my claim above that the OLC's interpretation renders the Dodd-Frank provision redundant. He argues:

[T]he Dodd-Frank provision would still have at least two further functions:  (i) It would make her term indefinite, i.e., until a successor is confirmed, whereas the VRA designation is time-limited; and (ii) it also applies to cases where the Director remains in office but is otherwise "absent or unavailable," e.g., in the case of recusal or debilitating illness.

I don't think that solves the problem.  As for the first argument, about the time limits, the Dodd-Frank provision is not written in such a way as to suggest that eliminating the time limits is its goal. If that were its purpose, we would expect to see something stating that the time limits in the VRA don't apply to the deputy director serving as acting director, rather than a blanket statement that the deputy director serves as acting director. I'm not aware of anything that suggests the Dodd-Frank drafters were concerned about the time limits in the VRA, as opposed to simply insuring that the deputy director becoming acting director, nor can I think of a reason why the time limits would be a special issue for the CFPB, as contrasted with other administrative agencies. As to the second argument, yes, the Dodd-Frank provision applies if the director remains in office, but the OLC (correctly, in my view) found that the Dodd-Frank provision was also intended to govern when the director resigns. In that context, the OLC's interpretation would render the Dodd-Frank provision redundant, and it is that context that is relevant here.

 

Why the Industry Should Support English to Lead the CFPB

by Jeff Sovern

First, in case anyone who reads this blog doesn't already know, yesterday, CFPB Director Richard Cordray appointed CFPB chief of staff, Leandra English, to become CFPB deputy director. Section 1011(b)(5)(B) of the Dodd-Frank Act provides that the deputy director  shall "serve as acting Director in the absence or unavailability of the Director." Mr. Cordray then resigned, seemingly making Ms. English the acting director. But within hours, the White House proclaimed that it would appoint Office of Management and Budget Director Mick Mulvaney to run the agency, pending confirmation of an as-yet unnamed permanent director. The president presumably claims that authority under the Federal Vacancies Act.  But as Georgetown's Adam Levitin has demonstrated, Dodd-Frank's drafters rejected that idea. As Alan Kaplinsky and others have noted, the dueling claims will surely lead to litigation over which one is the director.

In the meantime, any action either purported leader takes on behalf of the CFPB will be subject to challenge by anyone who has standing, and perhaps set aside. That will undoubtedly affect the willingness of CFPB employees to act in a variety of ways, as well as those who are regulated by the CFPB. The result will be uncertainty for consumer financial businesses. 

We often hear that the industry is deeply troubled by uncertainty. Consequently, the industry should loathe this fight and should seek an early resolution.  If the industry supports Ms. English and presses the Trump administration to walk back its appointment of Mr. Mulvaney, the administration, facing a united front from both consumer advocates and the industry, will probably accept Ms. English as the acting head.  Uncertainty will dissipate.  In contrast, consumer advocates, who would surely prefer uncertainty to the appointment of a director who opposes the Bureau's mission and sees it as a a “joke . . . in a sick, sad way,” have no incentive to accede to the appointment of Mr. Mulvaney. In short, the industry should band together with consumer advocates and throw in the towel on this one. If they don't, it will give the lie to their claims of the problems with uncertainty.  

Politico Reports Two Other Candidates to Run the CFPB: Buckley & Strange

From Ben White's Morning Money Newsletter, here's the report on Buckley & Strange:

POLITICO’s Lorraine Woellert: “There’s no shortage of wannabes to fill Richard Cordray’s soon-to-be-vacant post at the CFPB. The latest names to circulate are Jerry Buckley of Buckley Sandler, an industry go-to for consumer finance law, and Alabama’s Luther Strange, the Senate short-timer who lost his GOP primary to Roy Moore.

“Strange would ‘make sense’ said one Senate staffer. He’s popular on both sides of the aisle and probably would be an easy confirmation. Plus, ‘he greatly values public service,’ the staffer said. Buckley and Strange didn’t respond to requests for comment.”