Monday at CFPB: Doughnuts and Two Bureaucrats Claiming They’re in Charge

Updated on
  • Mulvaney shows up and tells watchdog’s workers he’s in charge
  • But CFPB official who’s also vying for top job files lawsuit
Bloomberg’s James Hertling discusses the battle over CFPB leadership.

If there’s a question mark over who’s in charge of the Consumer Financial Protection Bureau, Mick Mulvaney is having none of it.

The White House budget director, who has called the financial watchdog the “worst kind” of government entity, showed up bright and early Monday with an olive branch for the CFPB’s bewildered staff: doughnuts. He then started pouring through briefing books and sent a memo to workers advising them to disregard any orders from the agency bureaucrat who’s separately asserted that she’s the boss.

Mulvaney arriving at the CFPB on Nov. 27.

Source: Karl Frisch

But while Mulvaney tried to keep his first day as acting director of the regulator drama free, it was becoming increasingly clear that a federal judge will probably have to sort out what’s rapidly turned into a high-stakes legal battle.

The unusual chain of events was set in motion when President Donald Trump tappedMulvaney last week to serve as temporary director -- after outgoing CFPB Director Richard Cordray, a Democrat, named his chief of staff and long-time aide Leandra English as his successor.

Both sides say the law is on their side over who gets to name the bureau’s chief, and English was first to seek a legal ruling in her favor. She filed a lawsuit Sunday night to block Mulvaney from taking over. Another twist to the political thriller: the CFPB’s top lawyer backed the Trump administration by writing a memo that says the president has authority to appoint Mulvaney acting director.

All About the CFPB, Washington’s New Flashpoint: QuickTake Q&A

English tried to assert she was in control by sending an email to CFPB staff stating that “it is an honor to work with all of you,” according to a person who received her note. In the email, she identified herself as acting director.

Still, the tide seemed to be turning against her. Inside the agency, division heads told employees that they should follow the guidance written Nov. 25 by General Counsel Mary McLeod that Mulvaney was acting director, said two people with knowledge of the matter who asked not to be named because the emails weren’t public. And the judge assigned to decide English’s lawsuit against the administration is a Trump appointee who’s only been on the bench since September.

On Monday, Mulvaney directed workers to ignore instructions from English and to report any other communications “related in any way to the function of her actual or presumed duties” to McLeod, according to memo text obtained by Bloomberg. He also invited them to grab a doughnut.

If the fight persists, companies regulated by the agency may also wind up suing should either English or Mulvaney take actions before the leadership issue is resolved. In the meantime, the bureau’s work including writing rules aimed at cracking down on financial abuses and suing companies that break the law will be in limbo.

“There is no way for this to get resolved short of court intervention,”  said Alan Kaplinsky, a lawyer at Ballard Spahr who has represented big banks in lawsuits against the CFPB. “The CFPB will be paralyzed until we figure out who is in charge.”

Easing Rules

The power play over the CFPB’s leadership could complicate Trump’s broader efforts to roll back financial regulations. He’s facing intense opposition from Democrats who are avid Wall Street critics such as Massachusetts Senator Elizabeth Warren, who is credited with conceiving and shaping the bureau.

A court decision could take months, meaning the feud could spill over to next year’s midterm elections, when the Republican majorities in both houses of Congress could be at stake.

In appointing Mulvaney, the White House cites a 1998 law that enables the president to install a temporary director of an agency when there’s a vacancy. The Justice Department agreed with the White House, issuing a memo on Saturday outlining its reasons.

Democrats and other law experts disagree. Cordray defended his decision to name English by citing a Dodd-Frank Act provision that puts a deputy director in charge when the director is absent. To help make her case, English was planning to meet with Democrat senators on Monday, including Warren, Senate Minority Leader Chuck Schumer and Sherrod Brown, the top Democrat on the Senate Banking Committee.

“Trump’s attempt to install Mulvaney as interim successor is null and void,” Laurence Tribe, a law professor at Harvard University who did a stint at the Justice Department during the Obama administration, said on Twitter. “This has the makings of a constitutional crisis.”

Nominate Someone

The best course of action would be for Trump to nominate a permanent director for the Senate to confirm, said Republican Senator John Thune of South Dakota.

“We’ll process it as quickly as we can in the Senate and get somebody installed as soon as possible,” Thune said in an interview on the “Fox News Sunday” program.

Getting a permanent director confirmed could take months. Trump will make a decision about the agency’s next leader in the coming weeks, senior White House aides told reporters on a conference call Saturday. He’s considering several options, including candidates who’ve served as state attorneys general and individuals with experience in the financial industry, people familiar with the matter have said.

It’s not the first time the courts would have to answer existential questions about the CFPB’s power and leadership. Most notably, the mortgage company PHH Corp. sued in a case currently under appeal to overturn a penalty imposed by the CFPB on grounds the agency is unconstitutional because of the way it’s structured.

At the crux of the conflict is Republicans’ view that the CFPB lacks accountability because its sole director can only be fired for cause and because the agency is funded by the Federal Reserve, not Congress. Banks have also complained about what they say is the agency’s overly aggressive rule-making and burdensome red tape.

Trump Tweets

“Financial institutions have been devastated and unable to properly serve the public,” Trump said in a Twitter post on Nov. 25, calling the bureau under Cordray “a total disaster.”

“We will bring it back to life!” Trump said.

Democrats argue it is the bureau’s independence that makes it effective. They have celebrated the agency as a Wall Street watchdog needed to advocate for ordinary Americans and say it has returned nearly $12 billion to customers who’ve been shortchanged.

By naming Mulvaney as the interim director, Trump is trying to “put a fox in charge of the hen house,” Schumer said in a statement Sunday.

Even before Cordray announced his plans to resign Nov. 15, the White House had been working for months to determine his successor, and Mulvaney has been involved in those discussions, people familiar with the matter have said. The former lawmaker from South Carolina has called the CFPB a “joke,” and said Cordray ran it like “a dictator.” When he was in Congress, Mulvaney had sponsored legislation to eliminate the agency.

Aggressive Oversight

As its leader, English would be expected to continue Cordray’s aggressive approach to oversight. She’s worked at the bureau since its early days, serving in several leadership roles including deputy chief operating officer. She also spent some time at the U.S. Office of Personnel Management under President Barack Obama.

Mulvaney would likely set a much different tone. Lobbyists for financial firms said they expect he’ll begin by halting everything the agency is doing, so he can review internal processes and assess what changes need to be made. 

That means regulations in the pipeline could be stalled, such as efforts to impose new restrictions on companies that collect debt from consumers. Negotiations between the bureau and firms over enforcement settlements would also probably be affected, because it’s unclear whether Mulvaney would want to pursue cases that were started under Cordray’s watch, lobbyists said.

But until it’s clear who’s in charge, confusion at the CFPB risks spilling over to other financial regulators. The agency’s director is a voting member of the Financial Stability Oversight Council -- a panel of regulators that has a say in issues such as determining whether firms are too big to fail. The director is also a board member of the Federal Deposit Insurance Corp., which oversees the biggest U.S. banks.

“If this goes for longer than a week, banks are going to feel an impact,” said banking lobbyist Richard Hunt, president and chief executive officer of of the Consumer Bankers Association. “And that kind of uncertainty isn’t good for anyone.”

— With assistance by Andrew M Harris

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