Round 1 of CFPB Leadership Controversy Goes to Mulvaney — Why Does It Matter?

An unusual controversy over the leadership of the Consumer Financial Protection Bureau (CFPB) erupted last week, the resolution of which has important ramifications for consumer financial services regulation. A federal district judge ruled on Tuesday, November 28, 2017 that President Trump’s appointee as CFPB Acting Director, current Office of Management and Budget (OMB) Director Mick Mulvaney, is the legitimate Acting Director, denying a motion for a temporary restraining order (TRO) by former CFPB Director Richard Cordray’s appointee as Acting Director, current CFPB Deputy Director Leandra English. English plans to appeal to the D.C. Circuit.

This controversy began on Friday, November 24. First, then-CFPB Director Richard Cordray, in his final act before resigning, appointed then-CFPB Chief of Staff Leandra English as the CFPB’s Deputy Director, with the clear intent that English serve as Acting Director until the Senate confirms a new Director for a five-year term. Upon receiving Director Cordray’s letter of resignation later in the day, President Trump designated current OMB Director Mick Mulvaney as Acting Director.  

The Statutory Support for Both Appointments

This controversy results from competing views on the federal law that applies to appointments of a CFPB Acting Director. On Saturday, November 25, the Justice Department’s Office of Legal Counsel opined that the Federal Vacancies Reform Act of 1998 (FVRA) is the controlling statute. The FVRA authorizes the president to designate a person serving in another presidentially-appointed, Senate-confirmed office to “perform the functions and duties of the vacant office temporarily in an acting capacity” when the presidentially-appointed, Senate-confirmed holder of the office “dies, resigns, or is otherwise unable to perform” these duties. The OLC memo acknowledged that the FVRA is the “exclusive means” for temporarily appointing an acting official “unless  . . . a statutory provision expressly . . . designates an officer or employee to perform the functions and duties of a specified office temporarily in an acting capacity.” The memo also noted that Section 1011(b)(5) of the Dodd-Frank Act represents such a provision: that the CFPB Deputy Director, who “is appointed by the Director,” shall “serve as acting Director in the absence or unavailability of the Director.” The OLC memo concluded that while “[t]he FVRA is not the ‘exclusive means’ for the temporary designation of an Acting Director, . . . it remains available to the President as one means for filling a vacancy in the Director position.” Moreover, the memo continues, when exercising this authority, “the President’s designation necessarily controls.” 

In a memorandum to the CFPB’s Senior Leadership Team that day, CFPB General Counsel Mary McLeod agreed with the Office of Legal Counsel’s conclusion and “advise[d] all Bureau personnel to act consistently with the understanding” that Mulvaney is Acting Director. 

Next, on Sunday, November 26, Deputy Director English filed suit with private, not CFPB, representation, for a declaratory judgment that she is the Bureau’s Acting Director and a temporary restraining order (TRO) preventing (a) President Trump from “appointing any individual” as CFPB Acting Director or recognizing, or causing any person to recognize, someone other than her as Acting Director and (b) Mulvaney from accepting any appointment as Acting Director or “asserting or exercising in any way the authority of that office.” English asserted in her lawsuit that while the FVRA establishes the “default procedure” for naming an acting official, Section 1011(b)(5) of the Dodd-Frank Act constitutes “a statutory provision [that] expressly . . . designates an officer or employee to perform the functions and duties of a specified office temporarily in an acting capacity,” and thus supersedes the FVRA.

In response, on Monday, November 27, the Justice Department, joined by the CFPB General Counsel, filed a brief in opposition to English’s motion for a TRO, maintaining that (a) English has not demonstrated a likelihood of success on the controlling law issue, (b) English also has not demonstrated irreparable harm, and (c) the balance of harms and the public interest weigh against injunctive relief. The brief argued as in the OLC memo that the FVRA controls the appointment of a CFPB Acting Director, and emphasized that “[a]n order compelling the President to recognize [English] as Acting Director and withdraw his designation of Acting Director Mulvaney would intrude extraordinarily into core Executive Branch functions.”

Mick Mulvaney’s Actions Since Arriving at the CFPB

OMB Director Mulvaney assumed control of the CFPB once he arrived for his first day of work at its offices on Monday, November 27. Mulvaney directed CFPB employees to “disregard any instructions you receive from Ms. English in her presumed capacity as Acting Director.” A Washington Post article from November 27 indicated that Mulvaney said that “he ordered a [30-day hiring freeze and a] freeze on [rulemaking and other] actions to help him get a handle on the bureau’s activities,” and that he will work three days a week at the CFPB and three days a week at the OMB.

Impact of Outcome of English’s Lawsuit on the CFPB 

The outcome of English’s lawsuit will have a significant impact on the nature and scope of the CFPB’s activities until a Senate-confirmed Director takes office. Until the legitimate CFPB Acting Director is ultimately determined, CFPB activities will largely grind to a halt, per Mulvaney’s “freeze on actions.” In any case, parties under investigation, in the midst of supervisory examinations, or otherwise potentially affected by CFPB activity will be reluctant to deal with either of the purported Acting Directors, thus delaying resolution of matters and increasing uncertainty.

Door Number One: The CFPB Under Acting Director Mick Mulvaney

Mulvaney’s freeze on actions is unsurprising given his anti-CFPB views. The freeze implies that if Mulvaney is found to be the legitimate Acting Director, he would be likely to terminate, limit or delay implementation of CFPB actions. To the extent possible, he might even reverse or reopen pending or final actions (including rulemakings, guidance, interpretations, supervisory resolutions or enforcement settlements) that he, President Trump and other Republican leaders believe exceed the CFPB’s authority, rely on overbroad or novel interpretations of federal consumer financial laws, restrict economic growth, or do not sufficiently consider the costs imposed on or the interests of the consumer financial services industry. 

Under Mulvaney, it would be reasonable to expect the CFPB to take steps to clarify the law on a number of matters to create greater regulatory certainty. Finally, Mulvaney’s divided attention and restrictions on terminating federal employees would inhibit his ability to make decisions or reorganize or otherwise implement change at the CFPB. Of course, he could accelerate change by delegating certain decision-making authority to trusted associates from the OMB or his time in Congress (subject to the hiring freeze and federal personnel policies and processes) or to select existing Bureau senior leaders.   

Door Number Two: The CFPB Under Acting Director Leandra English

If English ultimately is found to be the legitimate Acting Director, she is likely to continue the CFPB’s broad, multifaceted approach to protecting consumers from harm related to consumer financial products or services and to ensuring that the markets for these products and services are fair and transparent. Under her leadership, the CFPB would likely continue pursuing enforcement investigations and actions and engaging with external stakeholders that have widely divergent views on the nature and scope of its activities. The CFPB would also likely proceed with its supervisory activities, pending rulemakings, consumer education and engagement initiatives, and advocacy on behalf of students and young Americans, servicemembers and older Americans.  

This article was updated on November 29 to reflect the court’s denial of English’s motion for a TRO.