Messy leadership change highlights need for CFPB commission

Tuesday, U.S. District Judge Timothy Kelly ruled that Mick Mulvaney, director of the Office of Management and Budget (OMB), also can serve as acting director of the Consumer Financial Protection Bureau (CFPB). 

Leandra English, who was appointed as CFPB deputy director by former Director Richard Cordray just before he resigned on Friday, challenged President Trump’s appointment of Mulvaney.

Judge Kelly rejected that challenge. Cordray had intended for English to serve as acting director once he resigned.

English and her allies asserted that until a new director was appointed and confirmed by the Senate, she could serve as acting director in accordance with a provision in the Dodd-Frank Act, which created the CFPB, governing the circumstances when the deputy director could serve as acting director.

According to news reports, English may appeal Judge Kelly’s decision or request a reconsideration of it. Most interestingly, the CFPB’s general counsel, Mary McLeod, opined on the day Cordray resigned that President Trump could appoint an acting director. That opinion, effectively confirmed by Judge Kelly, casts a dark cloud over the likely success of any appeal by English.

That this dispute even arose reflects the sloppy manner in which the relevant section of the Dodd-Frank Act was drafted.

Acting Director Mulvaney immediately acted on his pledge to run the CFPB in a “dramatically different” manner from how it was administered during the Cordray reign. For starters, according to the American Banker newspaper, “He has instituted a 30-day hiring and policymaking freeze while he reviews all rules and guidance still pending before the agency.”

These actions, though, are merely the first steps Mulvaney will take in materially altering the manner in which the CFPB interprets and enforces consumer protection laws to reflect the Trump administration’s regulatory philosophy. Consumer lending will soon begin to reflect this philosophy.

Specific issues that the Mulvaney CFPB will address include pending payday lending rules, the excessive complexity of mortgage-lending requirements and the manner in which the CFPB handles consumer complaints.

Two long-term issues affecting the CFPB have yet to be addressed, but soon will be, as well as one short-term issue — who will Mulvaney appoint as deputy director to replace English. 

That appointment will enable Mulvaney to scale back his time at the CFPB so that he can return to his primary duties as OMB director. That deputy director will assume day-to-day responsibility for implementing the Trump administration’s agenda for the CFPB.

First, who will the president nominate to serve a five-year term as Cordray’s successor? Having plugged in Mulvaney as acting director, the president can take his time in appointing a permanent director, for the longer it takes to obtain confirmation of that person, the longer his or her term will extend into the future.

Second, what changes does Congress need to make in the governance of the CFPB? The flap over Cordray’s replacement reinforces the need to fundamentally reshape the CFPB’s governance structure, as I discussed in a Nov. 16 Hill op-ed.

When drafting Dodd-Frank, Congress rejected the option of placing the policymaking and administrative responsibilities of the CFPB under an independent, bipartisan commission comparable to commissions overseeing the Federal Deposit Insurance Corporation, Securities and Exchange Commission, Federal Communications Commission and Federal Trade Commission. 

Such a commission, comprised of Republicans, Democrats and possibly an independent or two, would have provided more measured and balanced rulemaking and enforcement than occurred during the Cordray reign and is likely to occur under a Trump appointee as sole director of and rulemaker for the CFPB.

Pending financial regulatory reform legislation provides a vehicle for restructuring the governance of the CFPB as well as subjecting it to the appropriations process — another much needed reform.  Whether that will happen is an open question that may soon be answered, or not.

In the meantime, the Trump administration will quickly reshape the CFPB, its rulemaking and its enforcement activities, as it has promised to do. How all that will play out is anyone’s guess.

Bert Ely is the principal of Ely & Company, Inc., where he monitors conditions in the banking and thrift industries, monetary policy, the payments system and the growing federalization of credit risk.