Draining the Swamp at the Consumer Financial Protection Bureau

Skirmish over acting directors foreshadows a battle ahead.

The Consumer Financial Protection Bureau (CFPB) has become ground zero in President Trump’s fight to “drain the swamp” permeating the deep state in Washington, D.C.  This bureau was created during the Obama administration under the draconian Dodd-Frank Act, with the purpose of regulating various financial products directly affecting consumers, such as mortgages, credit cards, bank accounts and student loans. Barack Obama’s pick to run the agency as its director was Richard Cordray, who used the unilateral powers of his office to browbeat financial institutions, large and small. Mr. Cordray resigned late last week. A duel broke out between two claimants for the position of “acting director” to fill the vacancy left by Mr. Cordray until President Trump nominates, and the Senate confirms, his successor as director. Mr. Cordray tried, just before his resignation, to install his own pick for acting director, while President Trump appointed Mick Mulvaney, someone he trusts to jump start immediately the changes he believes are necessary to place some reasonable constraints on the run-away, unaccountable regulatory bureaucracy. For the moment, a federal court has supported the authority of the Trump administration's appointment, but the opposition is considering various options, including an appeal. While it's doubtful an appeal will succeed, it doesn't look like the Deep State is ready to concede this battle just yet.

The Consumer Financial Protection Bureau was originally the idea of then-Professor and now-Senator Elizabeth Warren, who regularly attacks anything connected to the financial industry. To ostensibly protect the Consumer Financial Protection Bureau from any political interference, Congress granted the bureau’s director extraordinary unilateral powers. It also decided to delegate to the Federal Reserve Congress’s constitutional authority to appropriate the funds to run the bureau. 

Before resigning his post a week earlier than planned, Director Cordray sought to extend his bureau's overbearing regulatory regime for as long as possible by handpicking his own “acting director” to replace him temporarily. He did this through the artifice of appointing a deputy director, Leandra English, just before his resignation took effect. He based his action on ambiguous language in the Dodd-Frank Act, which he claimed empowered his just-appointed deputy director to automatically take over as the “acting director” upon his departure.

President Trump promptly used his authority, as the head of the executive branch, under a provision of a separate statute dealing with the filling of temporary vacancies, to appoint his own acting director, Mick Mulvaney (who is also serving as the budget director). The president served notice that he would not allow the swamp to continue as is at the Consumer Financial Protection Bureau. 

On Monday, we witnessed the spectacle of two individuals publicly competing for the role of the bureau’s acting director. Mr. Mulvaney occupied the director’s office, brought some doughnuts for CFPB staff members, and sent out an e-mail to staff directing them to disregard any instructions they may receive from Ms. English. For her part, Ms. English sent an e-mail to the staff thanking them for their service. Both e-mails were signed “acting director.” 

A lawsuit was initiated Sunday night by Ms. English to block Mr. Mulvaney’s appointment. Judge Timothy J. Kelly of the Federal District Court of the District of Columbia, a Trump nominee who was confirmed by the Senate last September, ruled in favor of the Trump administration. An appeal of this decision, which is under consideration, would face an uphill battle, as it would have to overcome the legal opinion of the general counsel for the Consumer Financial Protection Bureau itself. The general counsel wrote "that the president possesses the authority to designate an acting director for the bureau." The Justice Department’s Office of Legal Counsel also issued an opinion that the president had the authority under the Federal Vacancies Reform Act to name an acting CFPB director. 

A panel of the United States Court of Appeals, District of Columbia Circuit, has already questioned what it concluded was the unchecked unilateral power of the CFPB director in violation of the Constitution’s separation of powers. In fact, as Judge Kavanaugh’s majority opinion issued in October 2016 noted, “the Director enjoys more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the President.” The panel’s judgment striking down the “for-cause” restriction on the president’s power to remove the CFPB’s director was subsequently vacated by the whole appeals court, which granted a petition for a rehearing. The full court heard oral arguments from the parties last May, but has not yet issued its decision on the merits of the case. 

The constitutionality of the Consumer Financial Protection Bureau as presently structured is still an open question. However, the concerns raised in the Court of Appeals panel’s October 2016 opinion regarding the unchecked powers of the director were borne out by Cordray’s last-minute maneuver. He sought to extend his reign temporarily by proxy with his handpicked underling. In doing so, Cordray purported to exercise powers above the constitutional and statutory authority vested in the president of the United States to temporarily fill vacancies, twisting ambiguous language regarding the acting director position in the Dodd-Frank Act to justify his action.

The Dodd-Frank Act provides that the deputy director – in this case, Cordray’s appointee Leandra English - “shall…serve as acting Director in the absence or unavailability of the Director.” The Federal Vacancies Reform Act, on the other hand, applies when “an officer of an Executive agency…whose appointment to office is required to be made by the President, by and with the advice and consent of the Senate, dies, resigns, or is otherwise unable to perform the functions and duties of the office.” Normally, the person filling the acting officer or director role under the Federal Vacancies Reform Act would be the first assistant (the equivalent of the deputy director position in the CFPB). However, the Federal Vacancies Reform Act specifically permits the president to make his own temporary appointment in lieu of the first assistant’s automatic succession so long as the person the president selects to fill the temporary vacancy “serves in an office for which appointment is required to be made by the President, by and with the advice and consent of the Senate.” Congress could have expressly excluded the single CFPB director from the coverage of the Federal Vacancies Reform Act when it came to the president’s own power to name an acting director when the director resigns, dies or is dismissed. Congress chose not to do so.

Advocates for Cordray’s maneuver argue that the more recent Dodd-Frank Act provision specifically applies to the temporary replacement of the CFPB director and thus supersedes the more general and older Federal Vacancies Reform Act provision. However, they ignore a key omission in the Dodd-Frank Act provision upon which they are relying to justify Ms. English’s temporary accession.  There is no mention in the Dodd-Frank Act provision of “resignation” or “vacancy” as triggers for the deputy director to automatically step into the director’s shoes. The “absence or unavailability” of the director is not the same thing as a resignation, death, or other cause creating an actual vacancy in the director’s office. Rather, the terms “absence” and “unavailability” contemplate a short interim of travel, illness or short term disability, during which the deputy director would step in until the director is able to re-assume his or her position. The omission of the word “vacancy” was not a mere drafting oversight. The version of the Consumer Financial Protection Act that originally passed the House of Representatives included the word “vacancy” as well as the word “absence” in the operative provision. However, the conference committee that reconciled the House and Senate bills dropped the word “vacancy” and referred only to “absence or unavailability.” Moreover, the conference report stated the intention that the CFPB would be run by “a Director who is Presidentially appointed and Senate confirmed.” Mr. Mulvaney qualifies under that standard. Ms. English does not. 

Senator Warren and her progressive allies are worried that Mr. Mulvaney’s appointment as acting director is the beginning of the end of the independent consumer financial protection regulatory bureau they so fervently support. Mr. Mulvaney is certainly no fan of the CFPB, once calling it a “sick joke.” Upon his assumption of the role of the CFPB’s acting director, he froze new hiring and imposed a 30-day halt on the issuance of any new regulations. However, Mr. Mulvaney also assured the CFPB’s staff members that he was not going to “set the place on fire or blow it up or lock the doors.” Instead, he said that he would follow President Trump’s direction to fix the bureau so that “it can protect people without trampling on capitalism.”

The skirmish over CFPB acting director is merely a preview of battles to come over the future direction of the Consumer Financial Protection Bureau. Protecting consumers is a laudable goal. However, it cannot be undertaken in a manner that flies in the face of basic principles of separation of powers, accountability and checks and balances. The Consumer Financial Protection Bureau has acted without any real oversight for too long, hurting both small financial institutions and the consumers they serve in the process. It is time to drain the swamp which the deep state inside the Consumer Financial Protection Bureau  inhabits.