A Tale Of Two CFPB Directors

Wherever you might come down on the current controversy over who’s really in charge at the CFPB, you have to admit it’s driven no shortage of headlines.

Some of our favorites: “Shootout at The CFPB Corral”, “Who’s the Boss” and “…Two Acting Directors Show Up To Take Command; One Brings Doughnuts, The Other Well-Wishes.”

In what is perhaps best described as the financial regulation equivalent of Thunderdome, the CFPB’s “two directors enter, one director leaves” situation will not be settled by a battle to the death between director of the Office of Management and Budget, Mick Mulvaney, and Leandra English, who was named the Bureau’s deputy director on Nov. 24. It appears likely, however, that this issue will most certainly be decided by a judge.

But how will that judge decide? What does all this mean for the future of the consumer watchdog group? And, how’d we get here in the first place?

Well …

How The CFPB Ended Up With Two Directors

The whole tempest on G Street in D.C. had its kickoff when the former director, Richard Cordray, announced he would step down from his role a little over six months early, reportedly to run for the open governor’s chair in his home state of Ohio.

A few days after Cordray announced his intent to leave his post early, President Trump signaled his plans to place current OMB head Mick Mulvaney in the role on an interim basis until a long-term head could be found and approved by Congress. Mulvaney was considered a controversial choice, given his public description of the CFPB as “one of the most offensive concepts” in the U.S. government, as well as his commitment to his earlier statement calling the CFPB a “sad, sick joke.”

But, in his last few days as director, Cordray decided to take a page from the “he who laughs last, laughs best” playbook by announcing that the agency’s chief of staff, Leandra English, would become the agency’s deputy director on Friday (Nov. 24). Cordray said her appointment as the interim  executive director would take effect as of Nov. 27, drawing from provisions in the Dodd-Frank reform bill, which gave birth to the CFBP. That provision stipulates that the deputy director “shall be appointed by the director; and serve as acting director in the absence or unavailability of the director.”

“In considering how to ensure an orderly succession for this independent agency … I have also come to recognize that appointing the current chief of staff to the deputy director position would minimize operational disruption and provide for a smooth transition, given her operational expertise,” Cordray said in a statement.

A few hours later, President Trump appointed Mulvaney as the acting CFPB director, with the White House further stating that Mulvaney will remain in the role until a replacement is nominated and confirmed.

“Americans deserve a CFPB that seeks to protect them, while ensuring free and fair markets for all consumers,” Mulvaney said in a statement to The Wall Street Journal.

President Trump, too, has legal precedent to draw from – specifically the Federal Vacancies Reform Act (VRA), which states that the president can fill a vacant executive branch position until a permanent replacement can be confirmed by the Senate.

Needless to say, the weekend was marked by various experts in policy and administrative law arguing the merits of the positions, and who has the stronger claim based on the actual language of the relevant statutes. On Saturday (Nov. 25), the Justice Department’s Office of Legal Counsel released a memorandum that supports the president’s authority to fill the vacancy created by Cordray’s departure. It’s a position that CFPB general counsel also happens to agree with, telling the bureau’s employees that Mulvaney has standing as interim director.

A lawsuit was widely predicted.

The Lawsuit And The What’s Next

And it didn’t take long for those predictions to be borne out. Sunday evening (Nov. 26), English filed a motion for an emergency temporary restraining order (TRO) to block the Trump administration from ousting her from the agency.

And yes, both directors showed up at work this morning, creating a flurry of dueling emails, instructions, well wishes and doughnuts.

English was the earlier virtual bird this morning, managing to circulate the first email with well wishes for the doubtless confused workers returning from a holiday weekend.

“I hope that everyone had a great Thanksgiving. With Thanksgiving in mind, I wanted to take a moment to share my gratitude to all of you for your service.” English signed the note: “Acting Director.”

English may have sent the first email, but Mulvaney beat her to the office – and from his new chair, he shot back a reply.

“It has come to my attention that Ms. English has reached out to many of you this morning via email in an attempt to exercise certain duties of the acting director. This is unfortunate but, in the atmosphere of the day, probably not unexpected,” he said. “Please disregard any instructions you receive from Ms. English in her presumed capacity as acting director.”

Mulvaney further requested that CFPB employees report any additional professional communications from English to the general counsel’s office. He also apologized for the drama – and made an offering of junk food.

“I apologize for this being the very first thing you hear from me. However, under the circumstances, I suppose it is necessary. If you’re at 1700 G Street today, please stop by the fourth floor to say hello and grab a doughnut.”

The doughnuts may be the only non-controversial part of this experience: Mulvaney’s spokesman tweeted a photo of empty boxes, with half of a single chocolate-covered doughnut remaining.

Who knows – it may be true that the way to a CFPB team’s hearts is through their stomachs, via doughnuts.

More controversial than the doughnuts, however, was OMB director Mulvaney’s announcement yesterday that he was imposing a 30-day hiring freeze and new rule making as he moves to take control of the CFPB. He also declared a freeze on payment from the civil penalties fund for at least 30 days. He said if there were statutory or legal guidelines, they would be met.

That ruling likely comes as good news for Santander, which had been deemed the likely target of CFPB action in the near future.

As for the lawsuit and how it will shake out for the two claimants to the interim CFPB throne, opinion seems to vary widely depending on who is asked, and their political affiliation.

The emerging consensus among legal scholars is that English will likely see her temporary restraining order granted by the District Court. However, that ought not be read as a sign that a judge is affirming the merits of her position so much as that the court is preserving the status quo without major change to the CFPB, which would give the two sides more time to fine-tune their arguments and the court more time to sift through them.

As for the merits of the argument itself, that is a divisive topic, though a majority of legal scholars are leaning toward the Trump administration ultimately prevailing in the case.

The administration argues that the president’s power to fill the spot under the Federal Vacancies Reform Act is the most relevant, and that Dodd- Frank’s language does not specifically designate an official to perform the functions of the director on an interim basis.

Some experts, including Georgetown University professor Adam Levitin, argue that English has the stronger side of the case because the president lacks the authority to appoint an acting CFPB director, given that Dodd- Frank explicitly states that the deputy director will “serve as acting director in the absence or unavailability of the director.” That, supporters note, is tantamount to a process for designating an interim director, meaning the president’s power to appoint an executive director under the Federal Vacancies Reform Act does not apply. The law says the president cannot temporarily appoint an acting official before a new director is confirmed by the Senate, if a law governing the agency designates an official to perform the functions of the director on an interim basis.

Other experts, including Alan Kaplinsky, a lawyer with Ballard Spahr, believes the president does indeed have the power to appoint an interim director, as Dodd-Frank “doesn’t expressly authorize” the deputy director to serve as acting director when a vacancy is created.

Then there’s what the CFPB’s general counsel thinks. On that note, according to Reuters, CFPB general counsel Mary McLeod – who was appointed by Cordray in 2015 – thinks the Trump administration has the stronger legal claim, and has written a memo to this effect.

The Bigger Issue

Interestingly, this issue may never be determined by a court, since there is no question that President Trump has the authority to fill the slot left vacant by Cordray on a permanent basis, as long as the Senate will sign off on the choice and approve the appointment.

But, as economist and Global Economics Group Chairman David Evans noted, this issue – while a lightning rod for opinions – is actually a small problem that points to a much, much bigger structural issue with the CFPB itself.

“The dueling director skirmish, which will probably be over quickly, is the least of the problems here,” Evans noted. “The CFPB should never have had a single director, with enormous powers, chosen by the president, since it can – and looks like it will – result in wild swings in enforcement and uncertainty for financial services firms and consumers.

“The CFPB – like the FTC and FCC, Evans noted – should have had commissioners, chosen from both political parties, with a chairman selected by the president, and should be accountable to Congress, including its budget, like every other agency,” he further emphasized.

Rule by organized committee, after all, has a long track record of working for both of the above mentioned federal commissions. And rule at the CFPB by two different directors with two different agendas, who are fighting each other for control with no clear guidance as to who is in charge – that, as of right now, is working for no one.