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Why the CFPB Acting Director Role Matters

When Consumer Financial Protection Bureau Director Richard Cordray officially resigned on Friday, November 24 it set in motion a string of events that has ended up in a legal battle over the position of Acting Director of the CFPB.

Before Cordray resigned, he attempted to put an interim leader in his place and named the CFPB’s Chief of Staff, Leandra English, as the Deputy Director. He stated to the CFPB staff that she would be the Acting Director of the CFPB pursuant to the Dodd-Frank Act. However, soon after Director Cordray’s resignation, the Trump administration announced its appointment of Mick Mulvaney (the current Director of the Office of Management and Budget) as the Acting Director of the CFPB, pursuant to separate law called the Federal Vacancies Reform Act (FVRA).

As you may have surmised, the CFPB cannot have two Acting Directors. For this reason, this dispute has to be answered by the courts. To prevent Director Mulvaney from assuming the role, Deputy Director English sued President Trump and Mick Mulvaney in federal District Court on Sunday, November 26. Deputy Director English asked the court to temporarily prevent Director Mulvaney from assuming the role, and asked the court to issue a declaratory judgment that she is the proper Acting Director. The court held a hearing the next afternoon, on Monday, November 27, but as of the writing of this article, the court has not issued any judgment.

Why is the Acting Director role important? Before President Trump nominates and the Senate confirms a new permanent Director of the CFPB, the Acting Director assumes the role of the Director on an interim basis. This person will have all of the powers of a permanent Director. This means an Acting Director selected by President Trump could carry out the regulatory reform policy objectives that are sought by the Trump administration and Republicans in Congress.

But whether the Dodd-Frank Act or the FVRA controls this interim succession at the CFPB is not immediately clear. The issue is that the Dodd-Frank Act provides that the Deputy Director “shall serve as Acting Director in the absence or unavailability of the Director.” However, the FVRA authorizes the President to appoint someone who has already been confirmed by the Senate to assume the Acting Director role in the event an official resigns, dies, or is otherwise unavailable. The statute provides that its authority is the “exclusive means for temporarily authorizing an acting official,” but it provides an exception to its exclusivity if another statute, “expressly … designates an officer or employee to perform the functions and duties of a specified office temporarily in an acting capacity.” The CFPB claimed in its lawsuit that the FVRA does not apply to the CFPB pursuant to this provision, because the Dodd-Frank Act has a mandate that the Deputy Director becomes the Acting Director. The CFPB also claimed that the Dodd-Frank Act should control, because it is a more specific statute and was enacted later than the FVRA. However, supporters of the Trump administration have good arguments in favor of the FVRA, including that the FVRA is still available to the President because its “exemption” is only from the exclusivity of its authority and not from the availability of the authority to the President. The Department of Justice issued a memorandum to the Trump administration supporting its view that the FVRA applies to the CFPB. And interestingly, the CFPB’s own General Counsel issued a memorandum also opining that the Trump administration has the authority to select the Acting Director under the FVRA. However, many supporters of the CFPB in Congress and the academic community have come to the opposite conclusion and determined that the Dodd-Frank Act controls.

This controversy will eventually be resolved, but given the novel legal issues it presents and the strong interests on both sides, it could take time to wind through the courts. And the fact that we are faced with this uncertainty has serious consequences, because any actions undertaken by an unauthorized Acting Director could be void. This could be a serious issue for any CFPB actions during this time. Another issue stakeholders should consider is that we will have an answer at some point in the future, and a change in CFPB leadership to someone designated by the Trump administration could have a serious effect on the CFPB’s operations, including its rulemaking and enforcement activity. Much of this may be favorable to the industry, but some of it may not be, and industry should begin thinking about what such a change would mean for business.

About Author: Richard Horn

Richard Horn is Founding Attorney of Richard Horn Legal, PLLC and is a former CFPB attorney who led the rule integrating the mortgage disclosures under the Truth in Lending Act and the Real Estate Settlement Procedures Act into the TILA-RESPA integrated disclosures. Horn has extensive experience and expertise as a former Senior Counsel and Special Advisor at the CFPB and Senior Attorney at the FDIC. Richard Horn Legal, PLLC specializes in consumer financial services regulation, with a focus on residential mortgage compliance.

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