Insider’s View: The CFPB in Uncharted Waters

Insider's View

Richard Horn, who led the final TRID rule while a Senior Counsel & Special Advisor in the Consumer Financial Protection Bureau’s Office of Regulations, is one of the foremost experts on TRID and other consumer finance laws and regulations. He is currently in private practice at Richard Horn Legal, PLLC.

CFPB Leadership

The Background

As you’ve likely seen in the news, the CFPB has found itself in uncharted waters this year. Richard Cordray officially resigned as Director of the CFPB on Friday, November 24, 2017. On his last day at the CFPB, he named the CFPB’s Chief of Staff, Leandra English, the Deputy Director and stated that pursuant to the automatic succession provision under the Dodd-Frank Act, she would be the Acting Director of the CFPB.  However, on November 24, President Trump designated Mick Mulvaney (who is also the Director of the Office of Management and Budget) the Acting Director of the CFPB upon Cordray’s resignation under the Federal Vacancies Reform Act, setting up the legal battle that has ensued since November 26, when Deputy Director English sued Mulvaney in the U.S. District Court for the District of Columbia, to prevent Mulvaney from assuming the role of Acting Director.  

How the CFPB’s interim leadership will get decided

The main issue in the case is which statute controls the succession at the CFPB: the automatic succession provision in the Dodd-Frank Act that designates the Deputy Director the Acting Director in the event of the absence or unavailability of the Director; or the more general statute, the Federal Vacancies Reform Act, which gives the President the authority to designate acting officials in the event of a vacancy.  

Why this matters

The answer to this question is important, because the actions of an unauthorized Acting Director could be voided after the fact.  This would mean those actions, like issuing rules or enforcement actions, would have no effect.  But this issue does not have a clear answer, and it is still unresolved by the courts.  

Deputy Director English first asked the District Court for a temporary restraining order, which the court denied on November 28.  But Deputy Director English then asked the court for a preliminary injunction.  A hearing was recently held on December 22 and the court issued an opinion denying the preliminary injunction. Deputy Director English is expected to appeal this decision.  And separately, a credit union in New York has sued to prevent Mulvaney from being Acting Director as well.  The credit union has made similar arguments as Deputy Director English, and stated that this issue affects it because it is unsure which rules to follow.  

In the meantime

While these cases wind their way through the courts, Mulvaney has undertaken the role of Acting Director of the CFPB.  And it appears he will have this acting position until the cases are ultimately decided, or President Trump nominates and the Senate confirms a new permanent Director.  We do not know when the Trump administration will nominate a new permanent Director, but a few possible names have been reported in the media.

In the meantime, Acting Director Mulvaney’s ability to take the position was helped by the CFPB’s General Counsel issuing a memorandum to staff in November opining that President Trump has the authority to designate Mulvaney the Acting Director CFPB, and instructed them to “act consistently with the understanding that Director Mulvaney is the Acting Director of the CFPB.”

Acting Director Mulvaney has taken some significant actions, including freezes on hiring, new regulations, and payments from the CFPB civil penalty fund.  In addition, it was reported that Acting Director Mulvaney instituted a moratorium on CFPB’s collection of consumer data citing cyber security risks, which has reportedly seriously affected the CFPB’s core functions.  There is deep concern that the directives that accompany the moratorium curtail the CFPB’s examination and enforcement functions. Senator Warren, for instance, recently sent a letter to Acting Director Mulvaney expressing her concern that under this moratorium examination staff has been directed not to request consumer information from institutions and enforcement attorneys have been directed not to review any new evidence in their investigations and enforcement actions.  It will be interesting to see what happens to the CFPB’s core functions in the long run under this moratorium.    

In addition, the CFPB recently issued a statement that it plans to revisit its Home Mortgage Disclosure Act rule, which greatly expanded the data that mortgage lenders are required to collect and report to regulators.  The statement indicated that the CFPB would reconsider some important aspects about the rule, including its coverage and new discretionary data points.

In Other News

Last October was also busy for the CFPB.  Congress disapproved the CFPB’s arbitration rule under the Congressional Review Act (CRA), preventing it from taking effect and causing the CFPB to withdraw the rule.  The CFPB also issued its payday loan final rule, which would require, in part, an ability-to-repay analysis for payday loans.  But legislation has recently been introduced in Congress to similarly disapprove the CFPB’s payday loan rule under the CRA.  This would prevent the rule, including its new ability-to-repay protection, from going into effect.

In December, as had been suspected, Richard Cordray announced his run for governor of Ohio, which explains his early departure from the CFPB.  

And finally, we are still waiting for the DC Circuit to issue its opinion in the PHH case, which case involves the CFPB’s interpretation of RESPA section 8 and the constitutionality of the CFPB’s single-director structure.  This case could have a major impact on the legality of Marketing Services Agreements and other arrangements under RESPA section 8, as well as the CFPB’s leadership structure.   

It will be very interesting to see how the CFPB and the industry navigate these uncharted waters.  Stay tuned!