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Next Steps for the CFPB

Posted in Financial Services Litigation and Enforcement, Regulatory and Compliance

Richard Cordray, the director of the U.S. Consumer Financial Protection Bureau (CFPB), resigned from this post at the close of business last Friday, November 24.  In a statement to staff, he said that Leandra English, the CFPB’s chief of staff, had been named deputy director and would take over as acting director of the agency upon his exit.  On that Friday evening, President Donald Trump named White House Office of Management and Budget (OMB) Director Mick Mulvaney as the Acting Director of the CFPB.  On Sunday, lawyers for Leandra English filed a lawsuit against the President and OMB Director Mulvaney in the U.S. District Court for the District of Columbia, seeking declaratory and temporary injunctive relief to allow Ms. English to serve as the Acting Director of the CFPB.  In the complaint, English’s attorneys argue she is entitled to the position under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which states the deputy director becomes acting director when the agency’s top spot is vacant.  We’ll leave it to the courts to determine who will succeed Director Cordray as the CFPB’s second director. But we’d like to offer some thoughts about what could happen next for the CFPB’s enforcement, regulatory, and supervisory enforcement activities.

Enforcement – Director Cordray’s resignation might have relatively little immediate effect on the CFPB’s ongoing enforcement work. Under the CFPB’s current rules and organizational authorities, the agency’s attorneys may open and conduct investigations without the director’s approval; thus, ongoing investigations or even new investigations likely will proceed apace for the near future.  It will take some time for the new director to assess ongoing investigations and litigation, but it will be within his or her authority to unilaterally terminate an ongoing investigation or dismiss a lawsuit. And while civil investigative demands do not require director approval, they do require the authorization of litigation deputies, the middle managers who are likely to eventually be replaced by a new director.  Further, because an enforcement matter may not be settled or a lawsuit filed without the director’s approval, ongoing matters are unlikely to conclude in the near term.

That said, any new Acting Director has authority to modify or eliminate the CFPB’s rules for conducting enforcement activities.  Because those actions appear to be bear on “rules of agency organization, procedure, or practice,” there could be a basis for the Acting Director to take steps without proceeding through the notice-and-comment requirements of the Administrative Procedure Act.  Whether the new Acting Director would modify existing rules of procedure or organization—or temporarily freeze actions—will be a pivotal issue in the near term.”

The medium-term impact of the change at the top could be substantial.  The focus of the CFPB’s enforcement work may shift to pursuing fraudulent entities, which has been a mainstay of the FTC’s enforcement work. Perhaps more than the FTC, though, the CFPB is staffed with many true believers of the CFPB’s consumer financial protection mission, some of whom left the FTC to join a more aggressive agency. Many of these attorneys also joined the CFPB from state attorneys general offices, where they enforced state UDAP laws. Because of these relationships, and the states’ authority to pursue UDAAP under Dodd-Frank, the CFPB’s enforcement office has frequently collaborated with multi-state groups to pursue enforcement actions. The CFPB has memoranda of understanding that allow it to share investigative files with the states. Until now, the CFPB hasn’t left much oxygen for the state AG’s to pursue Dodd-Frank claims. CFPB-friendly state attorneys general (California, Illinois, Pennsylvania, Massachusetts, and New York among them) could provide tools for the CFPB to continue aggressive enforcement—to the extent that the acting director or eventual permanent director does not direct the CFPB’s senior officials to cool the agency’s actions.

Regulations – Eventually, the CFPB’s rulemaking agenda will shift under a new director. In the short term, there is likely to be very little rulemaking activity from the CFPB. With the small dollar lending rule finalized and the arbitration rule finalized (and overturned), the next major item on the rulemaking agenda was the CFPB’s debt collection rule. While the comment period on that rule remains open, it is likely that rule will be re-written before it is finalized. OMB Director Mulvaney has also criticized the small dollar lending rule, which is scheduled to take effect on January 16, 2018.

Supervision – Absent legislative changes or a new director’s dramatically ceasing examination activity,  the CFPB’s supervision activities are unlikely to change meaningfully any time soon. Once a new director gains an understanding of the scope of the CFPB’s supervision activities, she or he will likely change supervision priorities. In the meantime, a new director will likely change the CFPB’s “tool choice” – that is, whether the CFPB uses supervision, rulemaking, or enforcement to pursue an issue.