As published in Dodd Frank Update
For the second time in eight years, the financial sector will witness the Consumer Financial Protection Bureau (CFPB) undergo a change in leadership at the hands of President Donald Trump – provided somebody wants the job. There are two key differences this time.
First, when Trump took office following the 2016 election, he was unable to remove then-CFPB Director Richard Cordray from the position without cause. The “for cause” removal provision has since been nullified via the Supreme Court’s 2020 decision in Seila Law LLC v. CFPB, meaning Trump can now remove the current director, Rohit Chopra, at will.
Second, the number of viable candidates interested in the role appears to be much more scant.
Dodd Frank Update asked former CFPB attorney Richard Horn, co-managing partner at Garris Horn LLP, for his perspective on why Chopra remained in office more than two weeks into Trump’s new administration. Horn speculated that replacing Chopra simply may not be a top priority for the Trump administration.
“We have a waiting game to see what happens with Chopra,” Horn said. “I’m surprised they haven’t axed him yet, but at the same time, I’m not surprised, because the bureau is not top of mind for them. Considering everything else that is going on in the world, it’s probably not even a secondary priority, maybe not even tertiary.”
Despite a highly-publicized comment by Elon Musk, the head of Trump’s new Department of Government Efficiency, claiming the administration wants to “delete” the bureau, doing anything remotely close to that is far from simple and was not among the Trump campaign’s main talking points.
Horn said he does not believe the first Trump administration was particularly interested in the bureau either, noting its decision to appoint Office of Management and Budget (OMB) Director Mick Mulvaney as its acting director.
“They cared so little about the bureau that they put someone in place there who was, at best, a part-timer,” Horn said. “They were really not paying much attention to it. They just needed someone who wasn’t Cordray or Cordray’s deputy at the time. The problem was that they selected directors who had no consumer financial regulatory experience.”
Under Mulvaney and then Kathy Kraninger, who was confirmed in July 2018 as the new permanent head of the CFPB, the bureau continued to issue enforcement actions citing fair lending issues and a host of other consumer protection laws. Horn said the staff was likely able to get some more aggressive legal theories by Kraninger because of her lack of experience. This could be an indication of the approach the new Trump administration may end up taking in which the industry would not see as much of a slowdown in the bureau’s enforcement and rulemaking activity as it might expect under Republican leadership.
“Past is prologue as they say,” Horn said. “History repeats itself. It’s possible that this administration could take the same approach with the CFPB – just put somebody in there who does not have a lot of substantive experience, who’s just not going to bring a ton of bad press to the administration. If they choose someone again who does not have the experience, it could be an opportunity for the staff to try and get their aggressive legal theories by the director. So, some of the aggressive things that the CFPB was working on might still come to fruition.”
Horn further speculated a new Trump-appointed CFPB director may focus the agency’s enforcement efforts on smaller companies to avoid the appearance of not caring about fair lending and other consumer protection laws.
Before anything can come to fruition for a second Trump-appointed CFPB head, someone has to be willing to accept the job. There have been reports indicating this task has been more difficult for Trump the second time around.
When Cordray voluntarily resigned his position as CFPB director in November 2017 to launch an unsuccessful gubernatorial bid in Ohio, not one but two successors emerged immediately.
Just before leaving office, Cordray promoted then-CFPB Chief of Staff Leandra English to the deputy director role, putting her in line to take over as acting director once he left, per his interpretation of the CFPB’s statutory succession plan under the Dodd-Frank Act.
However, Cordray’s effort to choose his successor was challenged by the Trump administration and its team of attorneys in what may be described as a “war of words” attempting to invalidate the move by contesting the semantic meaning of the statutory language the outgoing director relied on in his reasoning. Specifically, Dodd-Frank states that the CFPB’s deputy director “shall …. serve as acting director in the absence or unavailability of the director.”
Acknowledging that the CFPB’s controversial history does not make the leadership role an enviable position, Wolters Kluwer Senior Specialized Consultant Elaine Duffus told Dodd Frank Update she would expect current CFPB staffers to have different concerns than their new leader whose first order of business may be to replace them.
“The folks at the bureau today are cut from a particular kind of cloth and may be concerned about bringing somebody in who’s thinking completely differently and has a completely different approach to the role,” she said. “I don’t know if the person coming in would have that concern, but I think anybody working there certainly would. Depending on who it is and what they say about what they plan to do, there may be people leaving voluntarily, saying ‘I don’t want to be a part of this. It’s not the role I signed up for.’”
When the Trump administration named Mulvaney as the CFPB’s acting director, English was not deterred. She proceeded to take on the duties of acting director as Mulvaney did the same. CFPB staff then endured a bizarre period during which they received several messages from English and Mulvaney both asserting their own command of the bureau while simultaneously telling staff to disregard the other’s directives.
English filed suit in federal court claiming Mulvaney was illegally appointed as CFPB director. After the motion was denied, English filed an injunction against Mulvaney and the Trump administration in December 2017, again, claiming Mulvaney’s appointment ran contrary to federal statute. Several more court filings and appeals came in the months that followed.
In June 2018, with the Senate set to vote on the confirmation of Kraninger as the CFPB’s new permanent director, English resigned and dropped her suit. Kraninger worked for Mulvaney as associate OMB director at the time.
Duffus’s Wolters Kluwer colleague Jason Keller noted the CFPB’s position as the newest federal agency has made it subject to more scrutiny and controversy compared to its more established peers, making its director role less attractive than others. Keller said the Supreme Court’s ruling last year upholding the constitutionality of the bureau’s funding structure was “a big step forward” for its legitimacy but it is still an agency where the person in charge has had to actively defend its existence.
“All the other agencies that may not be under the same scrutiny have decades of history whereas the CFPB does not so maybe it’s a case where the newest kid on the block gets bullied the most,” he suggested. “I think it’s an important role. Whether the CFPB has been perceived to overstep its regulatory authority or go beyond its mandate, I’ll let others decide. But if you look at the good that the organization has done, I believe there is merit to its existence.”
The financial sector will continue to wait to see who the administration will appoint to fill this important role and endure a degree of uncertainty awaiting potentially significant changes in the agency’s priorities and approach under new leadership.
