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Succession battle at CFPB may end quickly

Richard Cordray’s abrupt resignation on Friday as director of the Consumer Financial Protection Bureau (CFPB) has a set off a legal battle between the Trump administration and Leandra English, who is Cordray’s chosen successor as acting director. English has filed a lawsuit in U.S. District Court for the District of Columbia in an effort to remain acting director and to block Trump's pick, Budget Director Mick Mulvaney, from taking control of the agency for an interim period. Joseph Lynyak III, a partner with the Washington, D.C.-based law firm of Dorsey & Whitney and an expert on banking law and the CFPB, discussed English's legal case and what the future may hold for the bureau. 

On what basis has Leandra English sued to remain the acting director?

LynyackIIIThere is a technical legal dispute and, I think, the emphasis is technical, regarding the authority of the administration to appoint a replacement director at the CFPB. There are two statutes that are at issue. One is the Vacancy Reform Act, and the other is a provision that is embedded in the Dodd-Frank Act that indicates that the deputy director is to be the acting director of the CFPB, if the former director is absent or unavailable. The argument is that [the] [Dodd-Frank] language preempts the Vacancy Reform Act. So, [she] is hanging her hat on what is arguably ambiguous language [by] claiming that it is very clear that the Dodd-Frank provision trumps the Vacancy Reform Act.  It is my view that the Trump Administration can use either, and they chose to use the Vacancy Reform Act by appointing Director Mulvaney.

So, what is the likely outcome of this?

After she filed the lawsuit asking for a restraining order —and again, this is typical litigation procedure — she asked for a temporary restraining order [TRO], which would stop the presses and prevent the Trump administration and Mr. Mulvaney from acting as the temporary director. That is currently before Judge [Timothy J. Kelly, a Trump appointee]. The way these things normally work is that, if she wins on the TRO, this is going to move this down the line. If not, it is all over but for the shouting. They may decide to still litigate it, but that would enable Mr. Mulvaney to validly claim that he is acting as the director, and he can begin to take actions, as he would choose to do so. The judge’s ruling is really the critical factor. As I understand it, he is looking at that now, and how he acts over probably today or maybe tomorrow will determine how this lawsuit proceeds.  

Assuming that this drags on, and it may not, does this have any impact on the CFPB, or will it be business as usual there?  

You have to consider the trickle-down effect that will happen. As I understand it, Mr. Mulvaney has issued some orders to the effect of having everything slow down or stop in process, so that he can reevaluate policy issues and enforcement matters, and so forth. What you have are current examinations and current enforcement actions taking place. Whether or not those completely grind to a halt remains to be seen. Over the next week things will probably significantly slow down. Lawyers representing parties that are targets will probably push back and insist that CFPB staff back off.

Once this succession struggle is settled and with Richard Cordray now gone, what will this mean in terms of their enforcement approach?

That is a real good question. There are two things that can be done, which would improve enforcement. Enforcement has been a bubbling up, rather than a bubbling down approach, where the enforcement attorneys have had a great deal of discretion to take whatever case they feel is warranted, [instead of] conforming potential enforcement cases to the established priorities of the agency as set by senior management. Reversing that trend, to require that there be better oversight as to what cases they are taking and how they go about it, would be a definite improvement.

The other thing is that there is no supervision by the legal division of the enforcement attorneys. The legal division and the general counsel should be specifically charged with overseeing enforcement actions. Again, coordination with the examination staff, as opposed to giving great discretion to the enforcement staff, I think would be a definite improvement.

Once the new regime is in place with the new director, or even under the acting director, do you see them initiating any rewrites or reinterpretations of the rules?   

Well, there are a couple of things that are currently on the front burner. One is certainly reorganizing senior management and establishing different priorities. I think that goes without saying. There has been a request on the part of many pay-day lenders to delay the effective date of the payday rule. That is certainly something that could happen. They are working on a debt-collection rule that is something that could be looked at. There is a very significant concern regarding small-business data collection, and the effects of the new HMDA [Home Mortgage Disclosure Act] rules.

Probably the most significant initiative they could have is giving guidance to the industry as to what actually constitutes a UDAAP violation [unfair, deceptive, or abusive acts or practices under Dodd-Frank]. Now, if it is an unfair, deceptive or an abusive practice, it doesn’t have to be illegal. It simply has to be wrong, and wrong is in the eyes of the enforcement division.

Operationally, [one priority], and I believe this is the uniform belief by the industry, is changing the way the CFPB provides instructions and guidance to the industry. Right now, they effectively don’t. And even when they talk to you, anything that they [tell the industry by way of informal guidance] can’t be relied upon by the industry. And that is not the proper role of a government agency. Government agencies do create ambiguity, even though they have the authority to regulate. They should be providing guidance, so people who want to comply, can comply. Giving out guidance that can be relied upon would be a major sea change at the CFPB that everyone is looking forward to.      


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